The document discusses reasons for liking emerging market currencies over different time horizons. Short-term, China allowing its currency to appreciate should spur other Asian currencies to rise as well and fuel speculation about emerging market currency strength overall. Medium-term, emerging markets are expected to raise interest rates and let currencies appreciate to reduce inflation caused by foreign exchange intervention, helping alleviate problems from intervention. Long-term, currencies tend to appreciate as countries grow richer, and rising wealth in developing nations is a major global trend expected over the next decade.
The document provides an overview of key concepts in monetary economics from different schools of thought. It discusses the Keynesian, classical, and monetarist views. Specifically, it explains the three motives for holding money according to Keynes as transactions, precautionary, and speculative demand. It also describes the demand for money curve and how the equilibrium interest rate is determined by the intersection of money demand and supply. Changes in the money supply can then affect aggregate demand, output, prices, and employment under different economic models.
80
The document discusses the Swiss National Bank's decision to cap the value of the rising Swiss franc against the euro to counter the negative effects of the strong franc on the Swiss economy. This bold action by the Swiss could lead to a "currency war" where countries lower their currency values to protect their economies. It adds uncertainty to the global economic environment.
The document discusses Japan's deteriorating financial situation, with a debt-to-GDP ratio approaching 200%, the highest in the world besides Zimbabwe. This has led S&P to downgrade Japan's credit rating, raising concerns that other countries like the US could face similar downgrades if deficits are not reduced. Rising debt is a major global problem with nations having to pay higher interest rates, making deficits harder to manage.
Market Outlooks
We leverage a global network of investment consultants and researchers to deliver industry specific knowledge and dynamic tools, which allows our clients to make informed strategic investment decisions.
G20 & The U.S. Dollar Policy - A PresentationEcon Matters
The Group of 20 ended on Nov. 12, 2010 in South Korea culminated in a watered down statement without any meaningful agreement on rising global tensions over trade and currency issues.
This presentation outlines some of my observations regarding G20, U.S. dollar policy and investing strategy in this environment
Please find a Global Currency Outlook, with an easy navigation menu to each of the individual currencies. A fantastic insight into what could be a very volatile end to Q3.
Investment Opportunity In Indonesia 12 November 2011Adrian Teja
This document discusses several global and Indonesian economic issues:
1) It analyzes balance sheet recessions, quantitative easing, China's role, and the risk of a US Treasury bond bubble bursting.
2) It provides an overview of Indonesia's strong GDP growth drivers like demographics and domestic demand, noting Indonesia may become a safe haven.
3) It outlines Indonesia's "hot issues" for 2012 like demographic bonuses and efficiency-driven growth supporting continued strong capital inflows.
The document provides an overview of key concepts in monetary economics from different schools of thought. It discusses the Keynesian, classical, and monetarist views. Specifically, it explains the three motives for holding money according to Keynes as transactions, precautionary, and speculative demand. It also describes the demand for money curve and how the equilibrium interest rate is determined by the intersection of money demand and supply. Changes in the money supply can then affect aggregate demand, output, prices, and employment under different economic models.
80
The document discusses the Swiss National Bank's decision to cap the value of the rising Swiss franc against the euro to counter the negative effects of the strong franc on the Swiss economy. This bold action by the Swiss could lead to a "currency war" where countries lower their currency values to protect their economies. It adds uncertainty to the global economic environment.
The document discusses Japan's deteriorating financial situation, with a debt-to-GDP ratio approaching 200%, the highest in the world besides Zimbabwe. This has led S&P to downgrade Japan's credit rating, raising concerns that other countries like the US could face similar downgrades if deficits are not reduced. Rising debt is a major global problem with nations having to pay higher interest rates, making deficits harder to manage.
Market Outlooks
We leverage a global network of investment consultants and researchers to deliver industry specific knowledge and dynamic tools, which allows our clients to make informed strategic investment decisions.
G20 & The U.S. Dollar Policy - A PresentationEcon Matters
The Group of 20 ended on Nov. 12, 2010 in South Korea culminated in a watered down statement without any meaningful agreement on rising global tensions over trade and currency issues.
This presentation outlines some of my observations regarding G20, U.S. dollar policy and investing strategy in this environment
Please find a Global Currency Outlook, with an easy navigation menu to each of the individual currencies. A fantastic insight into what could be a very volatile end to Q3.
Investment Opportunity In Indonesia 12 November 2011Adrian Teja
This document discusses several global and Indonesian economic issues:
1) It analyzes balance sheet recessions, quantitative easing, China's role, and the risk of a US Treasury bond bubble bursting.
2) It provides an overview of Indonesia's strong GDP growth drivers like demographics and domestic demand, noting Indonesia may become a safe haven.
3) It outlines Indonesia's "hot issues" for 2012 like demographic bonuses and efficiency-driven growth supporting continued strong capital inflows.
This document discusses the history of international monetary systems and China's currency policy. It provides background on the gold standard and Bretton Woods system, and describes the establishment of the Renminbi and China's dual track currency system. It outlines US concerns about China's currency policy and subsidies for manufacturers. China then introduced a "crawling peg" that referenced the yuan to a basket of currencies rather than just the US dollar. While this was welcomed by some, others remained skeptical of China's commitment to a flexible exchange rate. The document also notes impacts of yuan revaluation on trade and foreign exchange reserves.
This document provides an outlook on global markets for January 2012 from The Henley Group. It discusses challenges and risks across various asset classes including fixed income, currencies, property, and equities in major regions. Some of the main points covered include ongoing issues in the Eurozone debt crisis, concerns about hard landings in China, the fragile state of the US economy, and political risks remaining high in Europe. Overall the outlook maintains a cautious stance due to numerous risks and uncertainties in the global economic and market environment.
The document summarizes recent movements in the stock market, bond market, commodity markets, gold, and US dollar. Stocks rallied on hopes that politicians would negotiate to end the government shutdown and raise the debt ceiling. Short-term interest rates spiked due to uncertainty around a potential US debt default. Commodity prices remained flat due to weak global growth. Gold declined further as deflationary pressures continued globally despite central bank actions. The US dollar weakened against the euro due to improving economic news in Europe and ongoing Fed stimulus.
The document is a newsletter from the CEO of HBJ Capital providing an outlook on the global markets and economy. It warns that the US and European economies may be heading toward a recession as various economic indicators are slowing down. It predicts the Indian stock market will see further downside in the near future. The newsletter advocates keeping cash reserves for now and anticipates a buying opportunity will soon arise in stocks once market bottoms. It promotes understanding economic cycles to time investments in stocks and other asset classes.
This document summarizes the Mundell-Fleming model, which analyzes how fiscal, monetary, and trade policies affect aggregate demand in a small open economy. The model shows that under floating exchange rates, fiscal policy has no effect on output, while monetary policy shifts demand between domestic and foreign goods. Under fixed exchange rates, fiscal policy impacts output while monetary policy does not. Trade restrictions can boost domestic output under fixed but not floating rates. The document also discusses interest rate differentials and currency crises using Mexico's 1994 peso crisis as a case study.
The document provides an economic and market update for August 2012, analyzing factors such as global economic conditions, domestic economic growth and inflation trends, performance of key equity and debt markets, and providing an outlook on various sectors and the overall market. It notes recent monetary policy actions by central banks and analyzes their likely impact, while also offering recommendations to investors on portfolio rebalancing and positioning across different asset classes.
Indian equity markets performed strongly over the last month and year, with the Sensex and Nifty rising 4.9% and 5% respectively over the last month and 19.9% and 21.7% over the last year. Global equity markets also saw gains. Indian debt markets remained volatile, with yields on the 10-year G-sec falling 56 basis points over the last year. Gold and oil prices rose over the last year, but gains were modest over the last month. The rupee depreciated slightly against the dollar. Overall, most markets saw gains in the last year but momentum slowed in the last month.
This document provides a summary of economic and banking trends in July 2010. Key points include:
- Stock markets posted modest gains in July while fixed income investments saw yields decline.
- GDP growth slowed to its slowest pace in almost a year, while consumer sentiment figures were mixed.
- The Dodd-Frank financial reform act was passed, imposing new regulations on banks over $10 billion.
- Bank earnings improved in Q2 driven by lower loan loss reserves and improved net interest margins.
- Loan demand remained muted while banks competed on rate to retain customers.
- Certificate of deposit issuance was moderate with rates declining slightly over the month.
- Bond yields continued to decline in July while credit spreads
The document provides an economic update for key global markets as of February 28, 2013. It notes that equity markets in India, the US, and Japan saw gains over the last year, while commodities declined. Indian debt markets saw yields stabilize while the rupee depreciated against the dollar. Overall, the global economic environment remains cautiously optimistic but risks like the Italian election warrant monitoring.
A more simplified and reader-friendly version of P.K Basu's - India Economic Outlook - 2014. It deduces from past trends and outlines the current economic scenario around the world and its implications on the Indian economy.
This section examines the relationship between the Japanese yen and the US dollar over a 12-month period. It finds that the yen appreciated against the dollar, reaching a 14-year high in November 2009, but declined at various points when the Japanese government intervened verbally or through monetary policy to devalue the yen. Key factors that influenced the currency fluctuations included differences in price inflation and interest rates between the two economies, as well as shifting market psychology. The yen's appreciation has economic implications for Japan, such as making exports less competitive and posing challenges for monetary policy effectiveness.
The document provides an overview and analysis of recent developments in equities, fixed income, currencies and commodities markets. It discusses the following key points:
- Equities were flat with the S&P 500 rising 0.1% and developed markets down 0.5%. The US PMI came in at 48.6 indicating contraction and weakness in the machinery and metals sectors due to a weak Eurozone and slowing China.
- Bonds were flat with US Treasury yields falling 4 basis points. The Japanese government bond yield sits at 0.3% with its 2-year yield in negative territory, prompting the shift to equities.
- The US dollar strengthened on expected rate hikes while the Euro faces
US dollar strengthening once more as focus remains on the data this weekHantec Markets
Are we set for another improvement in the dollar? There continue to be market reactions to the negative surprises, but there now seems to be a different mind-set to positive data surprises and this is showing in a turn around in sentiment on the greenback. Last week there was a sharp pick up in the Home Starts and Building permits which...
The legacy of the dovish fed is set to continue this weekHantec Markets
After the FOMC monetary policy decision and Yellen’s press conference, the Fed made a staggering climb-down on its monetary policy. Has the Fed now got a credibility issue?
The document summarizes an economic analysis predicting a "W-shaped" recovery over the next few years for the US economy. It states that massive fiscal stimulus financed by monetary easing could lead to GDP growth resuming in late 2009, but this stimulus could also cause inflation and further monetary tightening, risking another recession in 2011-2012. Downside risks to the economy remain substantial in the near-term, with GDP forecast to contract sharply again in Q1 2009 and several indicators like housing remaining weak.
The document discusses the flattening of the U.S. Treasury yield curve and what it may signify. It notes that the yield curve, measured as the difference between the 10-year and 2-year Treasury yields, has flattened to just 66 basis points, the flattest seen during an economic expansion since 2005. While a flattening curve has often preceded recessions, the economy currently shows few signs of overheating. The flattening is driven by the Federal Reserve raising short-term rates gradually through its tightening cycle, while long-term rates remain stable due to subdued inflation expectations and a negative term premium. The flat yield curve warrants monitoring but does not necessarily signal an imminent economic downturn.
The document provides an economic update and outlook for April 2013. It discusses political uncertainty in India with the withdrawal of support for the ruling coalition. While inflation remains elevated, wholesale prices and core inflation are softening. The RBI cut interest rates slightly but emphasized fiscal consolidation is needed to revive growth. Global conditions remain supportive for equities though Indian markets have underperformed due to domestic challenges around inflation and reforms.
MTBiz is for you if you are looking for contemporary information on business, economy and especially on banking industry of Bangladesh. You would also find periodical information on Global Economy and Commodity Markets.
The current account, lrbc and consumption smoothingAsusena Tártaros
The document discusses the long-run budget constraint (LRBC) and how it relates to consumption smoothing. It shows that in an open economy, consumption can remain smooth even if there is a temporary shock to output, as the country can run a trade deficit financed by borrowing from abroad. However, for a permanent shock, both closed and open economies must cut consumption immediately and fully. Financial globalization thus allows countries to better cope with temporary fluctuations in output.
2013 Forecast Lake County "After the Fisca Cliff" PresentationLCCCIllinois
Presentation at 2013 Lake County Chamber Forecast Lake County luncheon: "After the Fiscal Cliff," by William Strauss, Chicago Federal Reserve. Feb. 19, 2013
The document discusses potential scenarios for the future of the US dollar and its role as a reserve currency. It begins with a market update and then outlines three scenarios: 1) A benign decline in the dollar similar to 2002-2007. 2) The dollar strengthening after the end of quantitative easing as interest rates rise. 3) The dollar losing its status as the dominant reserve currency in a drastic unwinding triggered by a geopolitical event or debt default. The document then analyzes relationships between the dollar, interest rates, quantitative easing, equities, and commodities. It notes China's growing role in banking and discusses the yuan as a potential future reserve currency.
The document summarizes the Asian financial crisis of the late 1990s. It describes how large capital inflows into Southeast Asian countries in the early 1990s fueled economic booms and real estate bubbles. However, the bubbles eventually burst when foreign investors began pulling money out. This led Thailand to float its currency in July 1997, sparking a financial crisis that spread to other countries through currency devaluations and falling stock markets. The IMF intervened with bailout packages that required economic reforms. The crisis exposed issues with crony capitalism and overreliance on foreign capital inflows in the region.
This document discusses the history of international monetary systems and China's currency policy. It provides background on the gold standard and Bretton Woods system, and describes the establishment of the Renminbi and China's dual track currency system. It outlines US concerns about China's currency policy and subsidies for manufacturers. China then introduced a "crawling peg" that referenced the yuan to a basket of currencies rather than just the US dollar. While this was welcomed by some, others remained skeptical of China's commitment to a flexible exchange rate. The document also notes impacts of yuan revaluation on trade and foreign exchange reserves.
This document provides an outlook on global markets for January 2012 from The Henley Group. It discusses challenges and risks across various asset classes including fixed income, currencies, property, and equities in major regions. Some of the main points covered include ongoing issues in the Eurozone debt crisis, concerns about hard landings in China, the fragile state of the US economy, and political risks remaining high in Europe. Overall the outlook maintains a cautious stance due to numerous risks and uncertainties in the global economic and market environment.
The document summarizes recent movements in the stock market, bond market, commodity markets, gold, and US dollar. Stocks rallied on hopes that politicians would negotiate to end the government shutdown and raise the debt ceiling. Short-term interest rates spiked due to uncertainty around a potential US debt default. Commodity prices remained flat due to weak global growth. Gold declined further as deflationary pressures continued globally despite central bank actions. The US dollar weakened against the euro due to improving economic news in Europe and ongoing Fed stimulus.
The document is a newsletter from the CEO of HBJ Capital providing an outlook on the global markets and economy. It warns that the US and European economies may be heading toward a recession as various economic indicators are slowing down. It predicts the Indian stock market will see further downside in the near future. The newsletter advocates keeping cash reserves for now and anticipates a buying opportunity will soon arise in stocks once market bottoms. It promotes understanding economic cycles to time investments in stocks and other asset classes.
This document summarizes the Mundell-Fleming model, which analyzes how fiscal, monetary, and trade policies affect aggregate demand in a small open economy. The model shows that under floating exchange rates, fiscal policy has no effect on output, while monetary policy shifts demand between domestic and foreign goods. Under fixed exchange rates, fiscal policy impacts output while monetary policy does not. Trade restrictions can boost domestic output under fixed but not floating rates. The document also discusses interest rate differentials and currency crises using Mexico's 1994 peso crisis as a case study.
The document provides an economic and market update for August 2012, analyzing factors such as global economic conditions, domestic economic growth and inflation trends, performance of key equity and debt markets, and providing an outlook on various sectors and the overall market. It notes recent monetary policy actions by central banks and analyzes their likely impact, while also offering recommendations to investors on portfolio rebalancing and positioning across different asset classes.
Indian equity markets performed strongly over the last month and year, with the Sensex and Nifty rising 4.9% and 5% respectively over the last month and 19.9% and 21.7% over the last year. Global equity markets also saw gains. Indian debt markets remained volatile, with yields on the 10-year G-sec falling 56 basis points over the last year. Gold and oil prices rose over the last year, but gains were modest over the last month. The rupee depreciated slightly against the dollar. Overall, most markets saw gains in the last year but momentum slowed in the last month.
This document provides a summary of economic and banking trends in July 2010. Key points include:
- Stock markets posted modest gains in July while fixed income investments saw yields decline.
- GDP growth slowed to its slowest pace in almost a year, while consumer sentiment figures were mixed.
- The Dodd-Frank financial reform act was passed, imposing new regulations on banks over $10 billion.
- Bank earnings improved in Q2 driven by lower loan loss reserves and improved net interest margins.
- Loan demand remained muted while banks competed on rate to retain customers.
- Certificate of deposit issuance was moderate with rates declining slightly over the month.
- Bond yields continued to decline in July while credit spreads
The document provides an economic update for key global markets as of February 28, 2013. It notes that equity markets in India, the US, and Japan saw gains over the last year, while commodities declined. Indian debt markets saw yields stabilize while the rupee depreciated against the dollar. Overall, the global economic environment remains cautiously optimistic but risks like the Italian election warrant monitoring.
A more simplified and reader-friendly version of P.K Basu's - India Economic Outlook - 2014. It deduces from past trends and outlines the current economic scenario around the world and its implications on the Indian economy.
This section examines the relationship between the Japanese yen and the US dollar over a 12-month period. It finds that the yen appreciated against the dollar, reaching a 14-year high in November 2009, but declined at various points when the Japanese government intervened verbally or through monetary policy to devalue the yen. Key factors that influenced the currency fluctuations included differences in price inflation and interest rates between the two economies, as well as shifting market psychology. The yen's appreciation has economic implications for Japan, such as making exports less competitive and posing challenges for monetary policy effectiveness.
The document provides an overview and analysis of recent developments in equities, fixed income, currencies and commodities markets. It discusses the following key points:
- Equities were flat with the S&P 500 rising 0.1% and developed markets down 0.5%. The US PMI came in at 48.6 indicating contraction and weakness in the machinery and metals sectors due to a weak Eurozone and slowing China.
- Bonds were flat with US Treasury yields falling 4 basis points. The Japanese government bond yield sits at 0.3% with its 2-year yield in negative territory, prompting the shift to equities.
- The US dollar strengthened on expected rate hikes while the Euro faces
US dollar strengthening once more as focus remains on the data this weekHantec Markets
Are we set for another improvement in the dollar? There continue to be market reactions to the negative surprises, but there now seems to be a different mind-set to positive data surprises and this is showing in a turn around in sentiment on the greenback. Last week there was a sharp pick up in the Home Starts and Building permits which...
The legacy of the dovish fed is set to continue this weekHantec Markets
After the FOMC monetary policy decision and Yellen’s press conference, the Fed made a staggering climb-down on its monetary policy. Has the Fed now got a credibility issue?
The document summarizes an economic analysis predicting a "W-shaped" recovery over the next few years for the US economy. It states that massive fiscal stimulus financed by monetary easing could lead to GDP growth resuming in late 2009, but this stimulus could also cause inflation and further monetary tightening, risking another recession in 2011-2012. Downside risks to the economy remain substantial in the near-term, with GDP forecast to contract sharply again in Q1 2009 and several indicators like housing remaining weak.
The document discusses the flattening of the U.S. Treasury yield curve and what it may signify. It notes that the yield curve, measured as the difference between the 10-year and 2-year Treasury yields, has flattened to just 66 basis points, the flattest seen during an economic expansion since 2005. While a flattening curve has often preceded recessions, the economy currently shows few signs of overheating. The flattening is driven by the Federal Reserve raising short-term rates gradually through its tightening cycle, while long-term rates remain stable due to subdued inflation expectations and a negative term premium. The flat yield curve warrants monitoring but does not necessarily signal an imminent economic downturn.
The document provides an economic update and outlook for April 2013. It discusses political uncertainty in India with the withdrawal of support for the ruling coalition. While inflation remains elevated, wholesale prices and core inflation are softening. The RBI cut interest rates slightly but emphasized fiscal consolidation is needed to revive growth. Global conditions remain supportive for equities though Indian markets have underperformed due to domestic challenges around inflation and reforms.
MTBiz is for you if you are looking for contemporary information on business, economy and especially on banking industry of Bangladesh. You would also find periodical information on Global Economy and Commodity Markets.
The current account, lrbc and consumption smoothingAsusena Tártaros
The document discusses the long-run budget constraint (LRBC) and how it relates to consumption smoothing. It shows that in an open economy, consumption can remain smooth even if there is a temporary shock to output, as the country can run a trade deficit financed by borrowing from abroad. However, for a permanent shock, both closed and open economies must cut consumption immediately and fully. Financial globalization thus allows countries to better cope with temporary fluctuations in output.
2013 Forecast Lake County "After the Fisca Cliff" PresentationLCCCIllinois
Presentation at 2013 Lake County Chamber Forecast Lake County luncheon: "After the Fiscal Cliff," by William Strauss, Chicago Federal Reserve. Feb. 19, 2013
The document discusses potential scenarios for the future of the US dollar and its role as a reserve currency. It begins with a market update and then outlines three scenarios: 1) A benign decline in the dollar similar to 2002-2007. 2) The dollar strengthening after the end of quantitative easing as interest rates rise. 3) The dollar losing its status as the dominant reserve currency in a drastic unwinding triggered by a geopolitical event or debt default. The document then analyzes relationships between the dollar, interest rates, quantitative easing, equities, and commodities. It notes China's growing role in banking and discusses the yuan as a potential future reserve currency.
The document summarizes the Asian financial crisis of the late 1990s. It describes how large capital inflows into Southeast Asian countries in the early 1990s fueled economic booms and real estate bubbles. However, the bubbles eventually burst when foreign investors began pulling money out. This led Thailand to float its currency in July 1997, sparking a financial crisis that spread to other countries through currency devaluations and falling stock markets. The IMF intervened with bailout packages that required economic reforms. The crisis exposed issues with crony capitalism and overreliance on foreign capital inflows in the region.
KBank Capital Market perspectives May 18 markets wrap up - positioning for ...KBank Fx Dealing Room
Global markets are experiencing renewed volatility due to concerns about the future of the eurozone and slowing economic growth. Investors have sold risky assets like stocks and bought safe-haven assets such as the U.S. dollar, Japanese yen, U.S. treasuries and German bunds. The U.S. dollar has strengthened about 8% against other major currencies over the past year. Asian currencies have also weakened against the dollar, with the Thai baht declining about 2%.
Ss china the us & currencies harvard kennedy school presentationMarcus Vannini
- The document discusses currency issues between China, the US, and the RMB. It argues that China should allow gradual appreciation of the RMB for several reasons, including avoiding overheating of the Chinese economy and making exchange rate policy an effective tool for balancing internal and external economic conditions.
- It also discusses criticisms of US twin deficits and theories around sustainable current account deficits. The global monetary system is shifting from a dollar-based system to one with multiple international reserve currencies.
My outlook for the year, written in December last year. Overly pessimistic unfortunately but with Spanish yields now over 6%, we\'re not out of the woods yet! (Pls note I did not write the China stocks or currency section.)
The document discusses the effects of the Federal Reserve reducing its $85 billion per month bond buying program. It notes that reductions in bond purchases can transmit to housing booms and busts which then impact banks and financial institutions. The document also discusses how quantitative easing (QE) has lowered yields, risk premiums, and increased wealth, but that real economic growth in the US is not happening fast enough. It questions whether large scale central bank asset purchases could lead to future financial bubbles or global currency and trade impacts. The conclusion is that developed economies must create real wealth rather than rely on nominal growth, and that banks will need to change their role in funding growth rather than asset bubbles.
Is Quantitative Easing Beneficial To The Global EconomyVeena Mohandas
Quantitative easing is a monetary policy used by central banks to stimulate their economy by increasing the money supply. The central bank creates money to buy government bonds from banks in exchange for cash, increasing bank reserves. This is intended to improve credit flow. However, excessive money creation can cause currency devaluation and inflation. While quantitative easing aims to boost the domestic economy, it has international impacts like currency fluctuations, trade imbalances, rising commodity prices, and challenges for emerging markets and debtors.
Quantitative easing (QE) is an unconventional monetary policy used by central banks to stimulate the economy by increasing the money supply. The central bank creates money to buy government bonds and other assets from banks. This increases bank reserves and is intended to boost lending. However, QE can negatively impact emerging markets through currency depreciation and higher commodity prices. It may also increase inflation and international debt burdens. While QE stimulates the domestic economy, it has mixed effects globally.
The document discusses several issues facing the US dollar, including large budget and trade deficits. It notes that the US does not meet international rules for maintaining foreign currency reserves to cover short-term debt. This could cause problems as over $2 trillion in US debt matures in the next year. The document questions who will finance growing US deficits and debts if other countries diversify away from the dollar. It predicts a weakening dollar in the next 12 months as the only option may be printing more currency.
The document discusses China's policy of currency devaluation and its impacts. It notes that since 2003, China has devalued its currency to gain a competitive advantage in exports. This has boosted Chinese exports while hurting exports of other countries. The devaluation also allows China to run large trade surpluses. However, constant large trade surpluses through devaluation are not a sustainable long-term strategy and China should restructure its economy and let market forces determine its currency value more.
The Chinese government devalued the Yuan in August 2015 by nearly 4% to counter poor economic indicators, including slowing exports, falling stock markets, and capital outflows. This was the largest one-day devaluation in 20 years and reflected China's attempt to balance goals of a stronger currency to curb capital flight versus a weaker one to boost exports. While critics accused China of currency manipulation, the IMF approved of the move as China transitions to a more market-driven exchange rate for the Yuan.
On November 2, 2010, EIU Senior Economist Leila Butt, presented the Economist Intelligence Unit Global Outlook in Boston. Key points in this presentation include:
- Most economies are growing again
- Emerging markets are booming
- Unemployment remains very high
- Consumers are rebuilding balance sheets
- Countries are heavily indebted
- Deflation is a risk in rich countries
- Asset bubbles are a risk in emerging markets
The Renminbi (RMB) was first issued in 1949 and China instituted a dual currency system in 1978 with the RMB only usable domestically. In the late 1980s and 1990s, China worked to make the RMB more convertible on current accounts. From 1994 to 2005, China pegged the informal value of the RMB to the US dollar. In the 2000s, the US pressured China to appreciate the RMB to decrease Chinese exports and preserve US manufacturing jobs. China resisted due to concerns over affecting exports and jobs. RMB appreciation could impact China's economy, exports, investment, and production while benefiting consumers and potentially creating new jobs through innovation and industrial upgrading.
This document discusses exchange rates and managing exchange rate risk. It begins with definitions of exchange rates and factors that influence exchange rate changes such as demand and supply of goods, capital flows, inflation, and government intervention. It then discusses specific examples like the Asian Financial Crisis of 1997 and sovereign debt crisis in Europe to illustrate exchange rate challenges. For managing exchange rate risk, the document recommends hedging techniques like forward contracts but cautions they are not always effective at eliminating risk and business fundamentals are more important than trying to precisely predict exchange rates.
ECB and a new UK Prime Minister key this weekHantec Markets
As the FOMC moves into the blackout period, the dovish extent of policy makers is a key question that traders are grappling with. The ECB is first up this week and is likely to be a key driver for markets this week. Brexit is also key with a new Prime Minister for the UK to be announced. We look at the impact on forex, equities and commodities.
All eyes on the Fed, but what sort of cut?Hantec Markets
It is an incredibly important week for markets with the big focus on the monetary policy meeting of the Federal Reserve. A rate cut is guaranteed, but what will forward guidance bring? We look at the impact on forex, equities and commodities.
Dovish Fed offers limited respite for EMs QNB Group
Emerging markets have continued to experience capital outflows even after the US Federal Reserve decided not to raise interest rates in September. While lower US rates could slow capital leaving emerging markets, ongoing concerns about structural weaknesses like slowing growth, falling commodity prices, and rising debt have led investors to continue pulling money out. Recent data on capital flows, exchange rates, stock markets, and bond yields in emerging markets suggest that capital flight increased following the Fed's announcement. China's economic slowdown has also hurt other emerging markets that rely on trade with China. With China expected to keep decelerating and the Fed still poised to raise rates, the outlook for emerging markets remains uncertain.
Swedbank was founded in 1820, as Sweden’s first savings bank was established. Today, our heritage is visible in that we truly are a bank for each and every one and in that we still strive to contribute to a sustainable development of society and our environment. We are strongly committed to society as a whole and keen to help bring about a sustainable form of societal development. Our Swedish operations hold an ISO 14001 environmental certification, and environmental work is an integral part of our business activities.
The document discusses the outlook for fixed income investments following the 2008 financial crisis. It notes that government bonds performed well in 2008 due to falling interest rates and a flight to quality. However, government bonds are now expensive. There is a risk of deflation in 2009 as domestic demand falls and commodity prices decline. Central banks will need stimulus to avoid deflation. After the recession, policymakers will try to boost demand to spur inflation and prevent liquidity traps. The document recommends hedging against reflation by investing in inflation-linked bonds and bonds of countries with higher yields within the eurozone.
1. Why we like Emerging Market currencies
Marshall Gittler
Chief Strategist, International
Deutsche Bank (Suisse) SA
22 June, 2010
Tel: +41(0)22 739 0463
e-mail: marshall.gittler@db.com
2. Why we like Emerging Market (EM) currencies on all time horizons
Short-term: China has started to allow its currency to appreciate.
That should allow other Asian countries to let their currencies rise as well
without losing relative competitiveness.
It may also spur speculation about upward pressure on EM currencies in
general.
Medium-term: We expect EM countries to raise rates & let their currencies
appreciate to restrain inflation.
One reason inflation is rising in EM countries is because of FX intervention.
Raising interest rates is one way to deal with inflationary pressures. Rising
interest rates should cause currencies to appreciate.
Allowing FX appreciation should also dampen inflationary pressures as well
as alleviating problems arising from intervention.
Long-term: Currencies tend to appreciate as countries grow richer.
Rising wealth in the developing world is likely to be one of the major global
trends over the next decade.
Global Investment Solutions Page 2
3. Why we like EM currencies
CNY appreciation, halted last year, has resumed
CNY was on an appreciating trend until the
global financial crisis hit in mid-2008 and the CNY has room to appreciate
government called a halt. Had they let it 8.00
USD/CNY: actual* vs previous trend
continue on the same path, it would currently
be around 26% stronger vis-à-vis the USD. 7.50
The government announced that it would
"further reform the exchange rate regime and 7.00
enhance the exchange rate flexibility" by
resuming the previously announced daily
6.50
trading bands (±0.5%) around the daily fixing
= 26%
rate announced by the Chinese government. USD/CNY appreciation
6.00
The currency appreciated by 0.45% on June May '07~Jul '08 trend
21st, the first day of trading after the news.
The market was forecasting the currency 5.50
would rise 2.3% over the next 12 months, vs *until Friday, June 18th
1.8% on the previous trading day. 5.00
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10
Source: Bloomberg Finance LP, DB Private Wealth Management
Global Investment Solutions Page 3
4. Why we like EM currencies
US-China trade tension pushed China to revalue
Tensions between the US and China
have been increasing as the US US trade deficit with China starting to widen again
Congress looks for an issue that
everyone can agree on, while China US trade with China
12m moving sum $bn
becomes more assertive in the world $bn
400 0
political arena.
350
Against this hostile background, Treasury -50
Secretary Geithner delayed the annual 300
Treasury report on currencies, which 250
-100
would probably have branded China a Balance (R)
“currency manipulator” and forced the US 200 Imports from China (L) -150
Exports to China (L)
to take retaliatory measures. He probably 150
did this to give China time to allow the -200
CNY to appreciate without seeming to 100
give in to foreign pressure. (Apparently, it -250
50
worked.)
0 -300
00 01 02 03 04 05 06 07 08 09 10
Source: Bloomberg Finance LP, DB Private Wealth Management
Global Investment Solutions Page 4
5. Why we like EM currencies
G20 meeting was the last straw
Pressure was building on China not only
from the US, but also from other CNY has been stable to lower since 2009
countries, including some other EM
1 Jan 2008 Recent movement of the Renminbi
countries. Brazil and India have publicly = 100 against various currencies
criticized China’s FX policy. 150
USD
That put China in a bind ahead of the EUR
140
June 26/27 G20 meeting, where China JPY
should be playing a leading role among 130
BRL
the developing nations. It was looking as MXN
INR
if the CNY would be a major topic of 120
discussion this weekend.
110
By allowing the CNY to appreciate again,
China has defused this issue for now. 100
The move does not satisfy those who
were looking for a large one-off 90
revaluation, and there are still questions
80
about how rapidly the government will 2008 2009 2010
allow the currency to appreciate.
Source: Bloomberg Finance LP, DB Private Wealth Management
Global Investment Solutions Page 5
6. Why we like EM currencies
Domestic pressures another incentive for China to revalue
Inflation continues to rise, led by food Real estate prices are rising again
% yoy
25 % yoy China inflation 14 China house prices vs money supply % yoy
27
20 12 25
House prices (L)
10 M2 Money supply (R)
15 CPI - general 23
CPI - food 8
21
10 6
19
5 4
17
2
0
0 15
-5 -2 13
2005 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
Source: Bloomberg Finance LP, DB Private Wealth Management
Domestic pressures also are forcing China to revalue. The main problem is that inflation is heating
up again, led by food. This is a lagging indicator of last year’s expansive monetary policy.
Food prices are not that responsive to monetary policy, but housing prices may be.
Global Investment Solutions Page 6
7. Why we like EM currencies
FX reserve accumulation fuelling money supply growth
One of the reason why monetary Money supply grows along with FX reserves
growth in China is so high is that the
45 $bn % yoy 40
China FX reserve accumulation vs
government intervenes heavily in money supply
40
35
the FX market to prevent the CNY
35
12m increase in China
from appreciating. It creates and FX reserves (L) 30
30
sells CNY and buys dollars. M1 (R) 25
25
If officials want to slow the pace of 20 20
monetary growth to cool the 15
15
economy, they will have to slow the 10
pace of reserve accumulation. 5
10
0 5
2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: Bloomberg Finance LP, DB Private Wealth Management
Global Investment Solutions Page 7
8. Why we like EM currencies
The “Impossible trinity:” Countries can’t control everything at once
The problem for China (and other EM The impossible trinity
countries) is called the “Impossible
Trinity:” a country cannot control its Fixed exchange rate
exchange rate and maintain an
independent monetary policy while still
being integrated into the world
financial system through free capital
flows. It can only control two and must
let the market control the third.
Only 2 are
possible at
one time
Free capital Independent
flows monetary policy
Global Investment Solutions Page 8
9. Why we like EM currencies
Rising intervention fuels money supply growth, inflation
Rising money supply growth fuels inflation Asian countries reducing intervention
24 8
% yoy Asia: money supply vs inflation % yoy Change in FX reserves in AxJ
60%
Asia ex-Japan countries weighted by PPP
22 7 50%
20 Nominal broad money 6 40%
supply growth (L)
30%
18 Inflation (R) 5
20%
16 4 10%
0%
14 3
Six months previous
-10%
Latest month
12 2
-20%
a
s
an
a
d
na
a
e
K
10 1
ne
si
re
n
di
r
H
po
iw
hi
la
ay
In
Ko
pi
ai
C
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
S'
Ta
al
ilip
Th
S.
M
Ph
Source: Bloomberg Finance LP, DB Private Wealth Management
Many EM countries have chosen to control their exchange rates, but by doing so they lost control of
their monetary policy as they sold their currency and thereby increased the money supply.
This trend has been especially strong in Asia, where rising monetary growth has fuelled inflationary
pressures and given rise to fears of a financial bubble.
This may be one reason why several Asian countries have slowed their pace of reserve
accumulation recently despite the rising dollar. Money supply growth is slowing as a result.
Global Investment Solutions Page 9
10. Why we like EM currencies
India, Malaysia start tightening cycles as inflation rises; FX appreciating
38
% India policy rate, inflation & FX 9 % Malaysia policy rate, inflation & FX 3.1
16
40 3.2
14 7
42 3.3
12
5
3.4
44
10
3 3.5
46
8
3.6
1
6 48
3.7
4 50 -1
3.8
2 52 -3 3.9
2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010
RBI Reverse repo yield (L) India CPI (L) USD/INR (R, inverted) Malaysia overnight policy rate (L) Malaysia CPI (L) USD/MYR (R, inverted)
Source: Bloomberg Finance LP, DB Private Wealth Management
India and Malaysia have already started down this path. They have let their currencies appreciate
since the beginning of 2009, while the central banks of both countries recently started a tightening
cycle.
Global Investment Solutions Page 10
11. Why we like EM currencies
India, Malaysia, now Singapore; others to follow?
The Monetary Authority of Singapore (MAS)
surprised the market on 14 April by a Singapore NEER already outside its band
combined "recentering of the policy band at Estimated Singapore NEER
the prevailing level of the SGD NEER" 104 with upper and lower bands
(nominal effective exchange rate) and a shift
103
in the policy band’s slope to "modest and
gradual appreciation". This was the first time 102
MAS has adjusted both simultaneously and
thus was an aggressive tightening, in our 101
view.
100
MAS explained that Singapore’s recovery
“has been stronger than expected, and more 99
entrenched.” It said it expects the economy to
98
continue to improve and inflation to continue Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10
to rise for the rest of the year.
Source: Bloomberg Finance LP, Goldman Sachs, DB Private Wealth Management
We expect that other Asian countries are
thinking the same way but have been waiting
for China to move first before they too allow
further FX appreciation.
Global Investment Solutions Page 11
12. Why we like EM currencies
As short rates rise, FX should appreciate as well
We have seen how several Asian central
banks have begun to tighten policy to deal AxJ-USD 3m spreads is generally widening
with the inflationary threat. As a result, their
11 Spread of AxJ 3m rates vs USD 3m
short-term interest rates have been rising. 10
%
9
In the US however there is currently little fear 8
of higher inflation and the Fed has stated that 7 India
short rates are likely to remain low “for an 6 Indonesia
5 Korea
extended period of time.” 4 Malaysia
3 Philippines
The spread between short-term Asian 2 Singapore
interest rates and USD rates is rising as a 1
Taiwan
0
result. This widening interest rate differential -1
Thailand
is likely to support Asian currencies going -2
forward – and other EM currencies as well. -3
-4
-5
2007 2008 2009 2010
Source: Bloomberg Finance LP, DB Private Wealth Management
Global Investment Solutions Page 12
13. Why we like EM currencies
How did other Asian currencies react when CNY was floated in 2005?
Most Asian currencies underperformed the
CNY in the days after the USD peg was Other currencies outpaced CNY after 2005 unpegging
dropped in 2005. Movement of Asian currencies vs USD
120 22 July 2005
However, after a few months, the = 100
currencies generally appreciated more than 115
CNY KRW IDR
the CNY (except for INR).
INR SGD THB
The Chinese Yuan did not move during the 110
2008 crisis (as seen on pgs. 3 and 5).
105
100
95
90
Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06
Source: Bloomberg Finance LP, DB Private Wealth Management
Global Investment Solutions Page 13
14. Why we like EM currencies
Other EM countries also feeling inflationary pressure
Inflation is turning up in Latin
Inflation turning up in Latam, Asia; slowing in EMEA
America. The high level of inflation
12
in Eastern Europe and the Middle % CPI inflation rates
weighted by GDP at PPP
East (EMEA) has been coming 10
down recently, but it remains
8
relatively high.
6
Rising interest rates (which should
help EM currencies to appreciate) 4
and rising currencies are two of the
2
ways that we expect EM central
banks to deal with the inflationary 0
G3 (inc UK) East Asia (ex Japan)
danger. Latam EMEA
-2
2004 2005 2006 2007 2008 2009 2010
Source: Bloomberg Finance LP, DB Private Wealth Management
Global Investment Solutions Page 14
15. Why we like EM currencies
Capital controls are not likely to be a long-term solution
Some countries have tried capital
Capital controls didn’t work for THB or BRL
controls as another way of dealing
with the “impossible trinity,” that is, 115
4m before date of
keeping hold of FX and monetary imposition = 100
policy by restraining capital flows. Week when controls BRL
110 were imposed
Previous attempts at controlling FX (19 Dec '06 for THB)
rates through capital controls have
generally proved ineffective. Brazil 105
tried something similar back in
THB (9/06
2008, but it had only a temporary to 4/07
effect. Thailand also tried to 100
restrict inflows in 2006, but this too
caused only a short-term plateau
in the upward trend. 95
Dec-07 Feb-08 Apr-08 Jun-08
We see this as a way of slowing
the trend, but not defeating it. Source: Bloomberg Finance LP, DB Private Wealth Management
Global Investment Solutions Page 15
16. Why we like EM currencies
EM currencies likely to appreciate as EM countries get wealthier
As countries become more
Richer countries tend to have richer currencies
developed, their export sectors
become more efficient & more Currency valuation vs GDP
20%
competitive and labor costs start to
Brazil Hungary
rise. Other sectors have to raise their 10% Turkey
Czech
wages too in order to keep pace. As a
Currency over/undervaluation
based on Economists' Big Mac index
0%
result, wages – and price levels – Colombia
Chile
tend to rise1. -10%
Argentina
If wages and price levels rise -20% Poland
Mexico
simultaneously, it means that the -30%
Indonesia South Africa Russia
purchasing power of the currency
-40%
rises relative to that of other countries. Thailand Malaysia
Philippines
-50%
We expect rising prosperity in EM to China
be one of the major economic themes -60%
0 5,000 10,000 15,000 20,000 25,000
of the next decade. Rising FX rates
GDP/capita (based on PPP)
should accompany this trend.
1This is known as the “Balassa-Samuelson effect” Source: Bloomberg Finance LP, IMF, DB Private Wealth Management
Global Investment Solutions Page 16
17. Why we like EM currencies
Other reasons for EM currencies to appreciate
Growth gap: Growth potential in the G7
countries has been further reduced by the crisis
but also by structural factors. The already EM countries forecast to grow faster than DM
strong growth lead of the EMs, especially in 14% Annual growth rate
Asia, should therefore continue to widen. 12%
at PPP Forecast
Relative importance of exports is declining. 10%
In some countries domestic consumption is 8%
becoming increasingly powerful driver of 6%
economic growth. This means that the
4%
importance of a weak exchange rate for exports
2%
is declining.
0%
Solid fundamentals (this applies above all to
-2%
EM Asia and Latin America). 1980 1985 1990 1995 2000 2005 2010
Capital inflows: Privatisations are in the Advanced economies Emerging and developing economies
pipeline in several countries (India, Malaysia),
as well as the largest share offers ever (Brazil, Source: IMF World Economic Outlook
China). Huge infrastructure projects (India,
China) should also attract foreign capital.
Global Investment Solutions Page 17
18. Why we like EM currencies
Reasons to invest in EM currencies through EM bonds: improved risk profile
EM debt burden is falling EM demographics still improving
110 Dependency ratios
%
Public debt
90 # of children and elderly as a % of working-age population
as % of GDP
100
80
90 Advanced economies
Forecast Forecast
Emerging and developing economies
80 70
70
60
60
50
50
40 40
1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
30
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Developed countries Developing countries (ex least developed)
EM debt levels are likely to fall as a percent of GDP over the next five years while DM debt levels
soar, according to the IMF. Yet the pension burden that DM countries face is still far away. In fact, EM
countries could even afford higher debt levels, thanks to their higher growth potential. Productivity
increases, positive demographics, liberalization and deregulation give EM better long-term growth
potential than in DM. The combination of higher growth, and thus greater sources of revenue for debt
servicing, and much lower debt levels should further reduce the historical spreads paid on emerging
market debt.
Global Investment Solutions Page 18
Source: IMF World Economic Outlook Source: United Nations World Population Prospects 2008 Revision, DB PWM
19. Why we like EM currencies
Reasons to invest in EM currencies through EM bonds: higher return potential
Yields are generally higher in EM
bond markets than in DM bond EM bond yields are generally higher than DM
markets. That not only means greater 14 % EM vs DM 10yr bond yields
income, but also more room for price 12
appreciation if yields decline and 10
EM countries
greater cushion if interest rates move 8 DM countries
up. 6
4
Yet some EM countries have a lower
2
risk of being downgraded (or looked at
0
another way, a greater possibility of
K
G US
A l
a
M ry
y
o
Po u
C na
a
un a
R d
M sia
n
do a
a
a
i
ut az
an
si
r
ic
di
C e si
n
pa
bi
In fric
ad
U
ga
Pe
being upgraded) than the developed
la
hi
ay
ex
us
In
om
So Br
m
Ja
an
n
C
al
er
ol
h
H
countries that offer lower yields.
These include Brazil, South Africa, Data as of 22 June 2010
India, Colombia, Mexico and Russia, Source: Bloomberg Finance LP, IMF, DB Private Wealth Management
among others.
Global Investment Solutions Page 19
20. Why we like EM currencies
Reasons to invest in EM currencies through EM bonds: liquidity, diversification
Rapid development, growing size, importance and liquidity of these markets
Local Currency bonds have overtaken hard currency bonds in importance. Over the
past five years the local market has grown by 18.8% p.a. compared to 8% p.a. for hard
currency bonds. In addition to fixed coupon bonds, there is also an increasing supply of
inflation linkers.
Positive diversification
Local bond markets are driven above all by domestic factors, such as the fiscal
situation, inflation, external balances, etc., rather than US or ECB monetary policy,
which affect many other asset classes globally.
Global Investment Solutions Page 20
21. Why we like EM currencies
The new world will be more like the old world
India and China are reclaiming their historical role in the world economy
Share of World GDP
100%
Rest of world
80%
60% Europe & N. America
Japan
40% India
20%
China
0%
0 500 1000 1500 2000
Year
The emergence of the EM countries is more of re-emergence. For most of history,
China and India have been the major forces in the global economy.
Global Investment Solutions Page 21
Source: Angus Maddison, The World Economy
22. Why we like EM currencies
Which ship would you rather be on?
The ship used by
Chinese Admiral Zheng
He in 1405 compared to
Columbus’. The Ming
Dynasty's fleet of giant
ships predates the
Columbus expedition
across the Atlantic by
some 85 years.
Global Investment Solutions Page 22
Photograph of the display in the China Court of the Ibn Battuta Mall in Dubai. Source: Wikipedia
23. Why we like EM currencies
Strategy recommendations
Pure FX
Carry trades that involve borrowing in developed-country currencies and investing
the funds in EM currencies.
FX indices to take advantage of FX appreciation.
Bonds
We expect higher short-term rates in EM countries. Shorter-maturity bonds should
hold up better than the long end during a tightening cycle. Later in the cycle, switch
into longer-maturity bonds after rate hikes dampens inflation expectations.
Index-linked bonds would benefit from currency appreciation plus growth rates (and
hence inflation rates) that are likely to be higher than in the developed countries.
Real assets
Real assets, such as property, or claims on real assets, such as stocks, can be
bought now in currencies that we believe are likely to appreciate in the future.
Global Investment Solutions Page 23
24. Important notes
Private Wealth Management offers wealth management solutions for wealthy individuals, their families and select institutions worldwide. Deutsche Bank
Private Wealth Management, through Deutsche Bank AG, its affiliated companies and its officers and employees (collectively “Deutsche Bank”) have
published this document in good faith and on the following basis.
This document has been prepared without consideration of the investment needs, objectives or financial circumstances of any investor. Before making an
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Investments are subject to investment risk, including market fluctuations, regulatory change, possible delays in repayment and loss of income and
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This publication contains forward looking statements. Forward looking statements include, but are not limited to assumptions, estimates, projections,
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Further information is available upon investor's request.
Global Investment Solutions Page 24