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Off the Charts

Getting Kinky

Despite the volume of noise that has so often accompanied them, American elections have historically had very little impact on currency markets. This year could be slightly different. Donald Trump appears committed to doubling down on the protectionist impulses that defined his first term, threatening to implement a 10-percent “universal baseline tariff” on imports from all US trading partners. We don’t expect traders to take directional positions this far from election day, but we do worry that market participants are failing to anticipate a rise in uncertainty. Volatility term structures – which measure the cost of insuring against big moves...

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Weekly Chartbook, January 29

Fed policy is growing more restrictive. Fed Funds Target Rate, % Quarterly Refunding Announcements have been moving markets. USDCAD, DXY, EURUSD exchange rates, % change  British inflation rates are coming down faster than previously anticipated. Consumer Price Index, annual change, %, SA

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Weekly Chartbook, January 24

The Bank of Canada set the stage for rate cuts.  Overnight Index Swap-implied change in policy rate, % US growth and rate expectations keep rising. Consensus 2024 gross domestic product growth forecasts, % But other economies might be bottoming.  Composite purchasing manager indices, >50 = expansion, <50 = contraction ECB policymakers will likely punt rate cuts to June. M3 Money Supply, Adjusted Loans to Households, Adjusted Loans to Non-Financial Corporations, 12-month % change, NSA Inflation could impact March rate cut odds, moving the dollar. Implied likelihood of a March rate cut v. USDCAD exchange rate

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Weekly Chartbook, January 22

US growth and rate expectations keep rising. Consensus 2024 gross domestic product growth forecasts, % The greenback could pop on a Trump victory in New Hampshire. 1-year implied option volatility, at-the-money, 21-day moving average ECB policymakers will likely punt rate cuts to June. M3 Money Supply, Adjusted Loans to Households, Adjusted Loans to Non-Financial Corporations, 12-month % change, NSA Inflation might impact March rate cut odds, moving the dollar. Implied likelihood of a March rate cut v. exchange rates Markets have pulled easing expectations back, but the Bank of Canada setup remains dovish.  Overnight Index Swap-implied change in policy rate,...

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Good vibes?

The vibecession* – the deep sense of economic pessimism among consumers, businesses, and the media that set in after the pandemic – might be over. Friday’s University of Michigan survey illustrated a massive improvement in inflation expectations and consumer sentiment, and the San Francisco Fed’s daily news sentiment index has turned strongly upward, putting the three-month moving average very close to positive territory: This isn’t to suggest that a real recession isn’t around the corner – we still think one probably is – but stories do play a powerful role in determining how markets and economic actors behave. A further...

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