Founder

Olivier Desbarres

Exacting. Excellent. Exceeding. Exemplary.

4X Global Research

4X Global Research was founded in 2017 to provide institutional and corporate clients with the substantive research, high-quality analysis and thoughtful insight on Emerging and G20 economies and financial markets they need to make informed and timely decisions and gain an edge in their investments.

FX & Rates

The Federal Reserve at its policy meeting on 16th June, whether inadvertently or by design, reset financial markets’ clocks. The dust has since settled somewhat, with US short-end and long-end yields, the US Dollar and S&amp;P 500 trading sideways for the past couple of sessions. When looking at the past month, hawks, doves, bulls and bears can all claim at least a partial victory.The million Dollar question remains when the Federal Reserve will start tapering its asset purchases and hiking its policy rate. FOMC members will undoubtedly try to refine their thoughts in coming weeks, as will Chairperson Powell today in his testimony before the Joint Economic Committee.  But the next big hurdle for markets is Friday’s release of PCE-inflation data for May. Markets in May glided past US inflation data releases largely unscathed, in line with our forecasts, but the financial landscape has undergone a paradigm shift in the past week.Our view is that that unless PCE-inflation in May surprises materially to the upside, US short-end yields may retrace somewhat and the Dollar give back some its recent gains – but this is admittedly not a high conviction call.The Federal Reserve’s anonymous dot-charts have their limitations but for now we are sticking to “our core scenario that the Federal Reserve will only start tapering its monthly asset purchases in 2022 and only start hiking its policy rate in 2023”.We also think that that the gap between the start of the taper and the start of the rate hiking cycle will likely be materially shorter than the 24 months gap in 2013-2015.Our next FIRMS report will focus on Sterling and Euro which are drawn level as we approach half-time. Sterling has at the margin dominated the encounter in the past month, with the GBP/EUR cross currently trading around 1.168 – the upper half of a still depressingly narrow 18-week range of just 2.7%. We think Sterling will continue to slowly pull ahead in Q3 before losing steam in Q4.

The Federal Reserve at its policy meeting on 16th June, whether inadvertently or by design, reset financial markets’ clocks. The dust has since settled somewhat, with US short-end and long-end yields, the US Dollar and S&amp;P 500 trading sideways for the past couple of sessions. When looking at the past month, hawks, doves, bulls and bears can all claim at least a partial victory.The million Dollar question remains when the Federal Reserve will start tapering its asset purchases and hiking its policy rate. FOMC members will undoubtedly try to refine their thoughts in coming weeks, as will Chairperson Powell today in his testimony before the Joint Economic Committee.  But the next big hurdle for markets is Friday’s release of PCE-inflation data for May. Markets in May glided past US inflation data releases largely unscathed, in line with our forecasts, but the financial landscape has undergone a paradigm shift in the past week.Our view is that that unless PCE-inflation in May surprises materially to the upside, US short-end yields may retrace somewhat and the Dollar give back some its recent gains – but this is admittedly not a high conviction call.The Federal Reserve’s anonymous dot-charts have their limitations but for now we are sticking to “our core scenario that the Federal Reserve will only start tapering its monthly asset purchases in 2022 and only start hiking its policy rate in 2023”.We also think that that the gap between the start of the taper and the start of the rate hiking cycle will likely be materially shorter than the 24 months gap in 2013-2015.Our next FIRMS report will focus on Sterling and Euro which are drawn level as we approach half-time. Sterling has at the margin dominated the encounter in the past month, with the GBP/EUR cross currently trading around 1.168 – the upper half of a still depressingly narrow 18-week range of just 2.7%. We think Sterling will continue to slowly pull ahead in Q3 before losing steam in Q4.

Fixed Income and Currency Strategist

Gautam Jain, PhD, CFA

While our base case is not one of significant dollar strengthening, we need to be cognizant of the risk. As such, we evaluate which currencies are the most vulnerable if we get a repeat of the Q1 dollar appreciation and EM FX sell-off on the back of higher US Treasury yields.Separately, the attached file is a snapshot of the EM currency market in which we seek to identify the leaders and laggards among currencies by comparing the performance of each to its history as well as to other currencies based on their respective betas to an EM currency index.

While our base case is not one of significant dollar strengthening, we need to be cognizant of the risk. As such, we evaluate which currencies are the most vulnerable if we get a repeat of the Q1 dollar appreciation and EM FX sell-off on the back of higher US Treasury yields.Separately, the attached file is a snapshot of the EM currency market in which we seek to identify the leaders and laggards among currencies by comparing the performance of each to its history as well as to other currencies based on their respective betas to an EM currency index.

FX Dashboard: Which Currencies Are Most Vulnerable to Dollar Strengthening?

In this note, we identify the currencies that have outperformed and underperformed as EM currencies have overall appreciated with the dollar depreciating since the end of March. We also place our outstanding trade recommendations in the context of the relative performances of EM currencies.Separately, the attached file is a snapshot of the EM currency market in which we seek to identify the leaders and laggards among currencies by comparing the performance of each to its history as well as to other currencies based on their respective betas to an EM currency index.

In this note, we identify the currencies that have outperformed and underperformed as EM currencies have overall appreciated with the dollar depreciating since the end of March. We also place our outstanding trade recommendations in the context of the relative performances of EM currencies.Separately, the attached file is a snapshot of the EM currency market in which we seek to identify the leaders and laggards among currencies by comparing the performance of each to its history as well as to other currencies based on their respective betas to an EM currency index.

FX Dashboard: Updating the Winners and Losers in the EM Turnaround

Time and time again in the past five weeks US Treasuries and the S&amp;P 500 have sold off and the Dollar rallied in the wake of hawkish US surprises only for markets to quickly unwind these moves. Volatility in US financial markets has ultimately remained subdued and directionality has been limited. In the month to 3rd June US Treasury yields rose only very marginally and the S&amp;P 500 was broadly unchanged. Notably the Dollar NEER weakened a further 1%, suggesting that markets’ appetite to short the Dollar was not significantly curtailed by these bouts of inflation-concerns.Moreover, quasi-dormant US financial markets have since come to life (or at least a semblance of life), with the 10-year Treasury yield down 13bp to a 3-month low of 1.49% and the until-recently stagnant S&amp;P 500 up 0.8% to a new record-high of 4,227 on 8th June.The erosion of the Dollar’s long-term real yield and rally in riskier assets have resulted in the “safe-haven” Dollar NEER depreciating a further 0.8% to its weakest level since late-April 2018. The Dollar NEER has now weakened over 2% since 19th April, to a 37-month low, in line with our bearish Dollar outlook. Our take is that markets’ belief that the current spike in year-on-year US inflation above the Federal Reserve’s medium-term target will be permanent has further eroded. As we argued a fortnight ago, markets are rightly in our view not (yet) buying into the notion that the Federal Reserve is “behind the curve” and will have no choice but to announce in the near-term a tightening of US monetary policy.The bottom line is that “wait-and-see” is still seemingly the default setting for most developed central banks, including the Federal Reserve and European Central Bank.Some analysts have argued that the release tomorrow of US CPI-inflation data for May, even if in line with consensus forecasts, could prove to be the straw that finally breaks the markets’ dovish back. Based on precedent we do not think this will the case.

Time and time again in the past five weeks US Treasuries and the S&amp;P 500 have sold off and the Dollar rallied in the wake of hawkish US surprises only for markets to quickly unwind these moves. Volatility in US financial markets has ultimately remained subdued and directionality has been limited. In the month to 3rd June US Treasury yields rose only very marginally and the S&amp;P 500 was broadly unchanged. Notably the Dollar NEER weakened a further 1%, suggesting that markets’ appetite to short the Dollar was not significantly curtailed by these bouts of inflation-concerns.Moreover, quasi-dormant US financial markets have since come to life (or at least a semblance of life), with the 10-year Treasury yield down 13bp to a 3-month low of 1.49% and the until-recently stagnant S&amp;P 500 up 0.8% to a new record-high of 4,227 on 8th June.The erosion of the Dollar’s long-term real yield and rally in riskier assets have resulted in the “safe-haven” Dollar NEER depreciating a further 0.8% to its weakest level since late-April 2018. The Dollar NEER has now weakened over 2% since 19th April, to a 37-month low, in line with our bearish Dollar outlook. Our take is that markets’ belief that the current spike in year-on-year US inflation above the Federal Reserve’s medium-term target will be permanent has further eroded. As we argued a fortnight ago, markets are rightly in our view not (yet) buying into the notion that the Federal Reserve is “behind the curve” and will have no choice but to announce in the near-term a tightening of US monetary policy.The bottom line is that “wait-and-see” is still seemingly the default setting for most developed central banks, including the Federal Reserve and European Central Bank.Some analysts have argued that the release tomorrow of US CPI-inflation data for May, even if in line with consensus forecasts, could prove to be the straw that finally breaks the markets’ dovish back. Based on precedent we do not think this will the case. 

Cross-Asset Liquidity Strategist, CrossBorder Capital

Michael J. Howell

Cross-Asset Liquidity Strategist

Implementing Research Using Alt Data & AI

CrossBorder Capital

CrossBorder Capital is a London-based independent investment advisory firm. Founded in 1996, it exploits a gap in the investment arena by focusing on Central bank liquidity. 

It specialises in the monitoring and analysis of global liquidity flows - an important determinant of asset prices, from currencies through to bonds, equities and real estate.

CrossBorder Capital implements its investment strategy and currently manages over US$ 350m.


Cross Asset Strategy

<ul>
<li>US dollar is resuming its long-term downtrend</li>
<li>Net supply of international safe assets increasing. US Treasury adding more supply when needs of  ‘liquid’ private sector dropping</li>
<li>Already foreigners selling US bonds and switching into cyclical US risk assets</li>
<li>Liquidity factors are negative on the US dollar and warn of a 10-15% drop</li>
<li>Adding capital outflows, US dollar fall could exceed 20%</li>
</ul>


US dollar is resuming its long-term downtrend
Net supply of international safe assets increasing. US Treasury adding more supply when needs of  ‘liquid’ private sector dropping
Already foreigners selling US bonds and switching into cyclical US risk assets
Liquidity factors are negative on the US dollar and warn of a 10-15% drop
Adding capital outflows, US dollar fall could exceed 20%


United States

The euro is the official currency of the European Economic & Monetary Union.  The US dollar is the official currency of the United States of America.

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Fed: Same Game, Different Rules

Fed has reset rules of the game but we still think QE taper is about 6 months away and that Fed won't start hiking till 2023 - albeit potentially...

Olivier Desbarres

FX Dashboard: Which Currencies Are Most Vulnerable to Dollar Strengthening?

We evaluate which currencies are the most vulnerable under the risk scenario of a repeat of the Q1 dollar appreciation and EM FX sell-off on the...

Gautam Jain, PhD, CFA

FX Dashboard: Updating the Winners and Losers in the EM Turnaround

We identify the currencies that have outperformed and underperformed with the dollar depreciating since the end of March and place our outstanding...

Gautam Jain, PhD, CFA

Have Hawks Finally Lost Altitude?

Recent price action - US yields and USD down - suggests markets increasingly less concerned about US inflation and risk of a hawkish Fed surprise....

Olivier Desbarres

High Odds Of A US Dollar Bear Market?

Prospective capital outflows following a 'perfect storm' and deteriorating domestic finances could overshadow the US dollar. We foresee a 10-15%...

Michael J. Howell

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