Markets have had to digest a great deal of headline-grabbing news -Fixed Income Research & Macro Strategy (FIRMS) from Olivier Desbarres at 4X Global Research – 08 March 2018

Our Forecasts – Hits and Misses

  • 4X Global Research prides itself on the transparency of its forecasts – whether they prove accurate or not. We acknowledge that our recent forecasting track record has been mixed.
  • Markets have had to digest a great deal of headline-grabbing news out of the US, Europe and Korea in the past ten days but financial markets’ reaction function has been in line with the pattern observed in recent months.
  • Equity volatility spiked after US President Trump’s announcement on 1st March that the government would introduce tariffs on US imports of steel and aluminium and remains high relative to the past twelve months.
  • This is aligned with our view that equity markets and equity volatility are likely to remain very sensitive to macro data releases and policy announcements, particularly out of the US, and to major global events.
  • In contrast, volatility in currency markets remains subdued, including in Dollar, Euro and Sterling crosses. This runs counter to our expectation that currency volatility was more likely to rise than fall.
  • Our directional currency forecasts have also had mixed fortunes. We argued in late-January that the Dollar’s gradual depreciation was justified and would likely extend but the Dollar NEER has since appreciated by about 0.8%.
Nominal effective exchange rates

Nominal effective exchange rates

  • The thrust of our arguments is probably still valid but we acknowledge that as long as equity markets and global risk appetite remain choppy, the Dollar may hold its own near-term.
  • We remain bullish the Euro, as we have been in the past year, and the Euro NEER hit a multi-year high on 7th March.
  • However, the pace of appreciation remains glacial, in line with our expectations that messy European politics are likely near-term to partly negate improving Eurozone economic fundamentals and weigh on the Euro’s up-trend.

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4X Global Research is a London-based consultancy providing institutional and corporate clients with focused, actionable, independent and connected research on Emerging and G20 fixed income and FX markets and economies.

4X Global Research has a strong forecasting track record, rooted in both a qualitative and quantitative analysis of data, trends, policy decisions and global events. Its conflict-free and unbundled research services aim to give investors a unique edge in their investment decisions. Its exclusive subscription-based reports and consultancy services form the basis of a long-term strategic partnership with its clients.

Ryan Littlestone

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