Archive

November 26, 2024
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Wrestling Euro Bears Before Christmas

  • The Euro’s trend weakness reflects rate differentials that are already stretched, with ECB cut pricing at the extremes erroneously priced for the Fed two months ago.
  • Labour market data matter, and not just to the Fed. Unemployment trends are even more hawkish in the Euro area, and the ECB should clarify the policy relevance of this.
  • Seasonality also supports a fading of the fundamental consensus story. EURUSD hasn’t fallen into yearend since 2016, and crowded positioning could compound the reversal.

By Philip Rush

November 25, 2024
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The US And The ‘Axis of Upheaval’

  • How Donald Trump goes about trying to fulfil his commitment to end the Russia/Ukraine war stands to have a direct impact on rising tensions on the Korean peninsula and in the Taiwan Strait.

By Alastair Newton

November 22, 2024
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HEW: Misaligned Data Focus For FX

  • Euro weakness extended over the past week as markets discounted hawkish price and wage inflation. The market is excessively focused on activity growth rates and the PMIs rather than unemployment and the resulting underlying inflationary pressures.
  • Flash HICP for November may rise less than expected owing to base effects like German package holidays, but that is a temporary blip. Most other data have consistently warned against 50bp. The RBNZ’s likely 50bp cut again is an outlier.

By Philip Rush

November 21, 2024
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EA Wages Are Too Inflationary For 50bp

  • Upwards revisions to Euro area labour costs and a jump in negotiated wage settlements extend cost growth inconsistent with a sustainable return to the 2% inflation target.
  • The ECB hopes this will subside swiftly in 2025, with productivity growth and squeezed profit margins helping contain inflation. But these hopes seem set to be disappointed.
  • Persistent wage pressures should prevent a 50bp rate cut in December and limit further cuts. Less dovish fundamentals feed bullish Euro seasonality, magnified by positioning.

By Philip Rush

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