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Off the Charts

20 Sep 2023

Compromising positions

Ahead of this afternoon’s Federal Reserve meeting, we note that speculators have sharply reduced short positions against the dollar in the last month, with the capitulation coming after a series of stronger-than-expected data releases widened expected performance gaps between the United States and the rest of the global economy. Friday’s numbers from the Commodity Futures Trading Commission showed the net dollar position on the verge of flipping into bullish territory, with long trades on the euro tumbling sharply relative to levels earlier in the year. The net non-commercial futures position on the dollar against the G10 currencies plus the Mexican...

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19 Sep 2023

Slippery relationships

Expectations for more tightening from the Bank of Canada have shot up since this morning’s hotter-than-anticipated inflation report, with at least one hike priced in by the March meeting in early 2024. The loonie has jumped even more aggressively, reflecting oversold conditions going into the release (which were arguably reinforced by the psychological bias known as “round number anchoring” around the 1.35 mark) and a supportive oil-price backdrop. But don’t expect the effect to last.  For much of the last few decades, the Canadian dollar seemed to act like a “petro-loonie”, with oil prices playing a big role in driving...

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18 Sep 2023

In debt we trust

In dollar terms, the United States is the world’s most indebted country, with a net international investment position – the difference between US residents’ foreign financial assets and liabilities – increasing to –$16.75 trillion in the first quarter of 2023, according to the Bureau of Economic Analysis. If the US were subject to the same constraints as a household or business, this would be terribly alarming – and indeed, charts are frequently shared on Twitter and other social media sites purporting to show the imminent collapse of the economy as debt levels reach a tipping point (another, particularly confused one,...

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12 Sep 2023

Shock and awwww….

Oil prices have risen more than $20 from their lows earlier this year and US gasoline prices have jumped, raising fears of another seventies-style “energy shock” that weakens the economy and forces the Federal Reserve into further monetary tightening. Higher energy costs certainly could add to other factors – ebbing excess savings, student loan repayments, and slowing wage growth – in slowing consumer spending, particularly near the bottom of the US income distribution. But when we put oil prices in real terms – adjusting them for the rate of overall inflation over time – it is clear that today’s surge...

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