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

US macro data, including measures of US inflation, non-farm employment, retail sales, manufacturing output, ISM PMIs and consumer confidence indices, have been far less volatile since the peak in global risk aversion in March-April 2020 when the first national lockdowns decimated global growth. However, volatility in most of these monthly metrics remains high relative to history. This is particularly true for core CPI-inflation, non-farm employment, consumer confidence and the ISM non-manufacturing PMI. Yet volatility and directionality in US Treasury yields, including at the short-end of the curve, and in particular the Dollar has been modest in recent months. The Dollar NEER has oscillated in a range of just 1.7% for the past 11 weeks and within that range daily volatility has been very low. Moreover daily volatility in most major currencies has fallen further in the past month, with only a few notable exceptions. Volatility in the S&amp;P 500 has recently picked up but remains broadly in line with the past 12 months and has arguably been spurred by the Evergrande saga rather than by US (or global) macro data releases. Finally volatility and directionality in Brent crude oil prices have also been far more limited in recent weeks.That is of course not to say that US macro data have not mattered and will not matter going forward. They have and they will. At the very least macro data are a key input into Federal Reserve monetary policy which in turn has a strong bearing on US and global financial markets, as evidenced by markets’ reactions to the Fed’s 16th June policy. However, our analysis suggests that financial markets have become somewhat more detached from US macro data releases, even when these have materially deviated from consensus forecasts. At the very least their direct impact on US equity and interest rate markets and global FX and commodity markets has been modest in recent months.

US macro data, including measures of US inflation, non-farm employment, retail sales, manufacturing output, ISM PMIs and consumer confidence indices, have been far less volatile since the peak in global risk aversion in March-April 2020 when the first national lockdowns decimated global growth. However, volatility in most of these monthly metrics remains high relative to history. This is particularly true for core CPI-inflation, non-farm employment, consumer confidence and the ISM non-manufacturing PMI. Yet volatility and directionality in US Treasury yields, including at the short-end of the curve, and in particular the Dollar has been modest in recent months. The Dollar NEER has oscillated in a range of just 1.7% for the past 11 weeks and within that range daily volatility has been very low. Moreover daily volatility in most major currencies has fallen further in the past month, with only a few notable exceptions. Volatility in the S&amp;P 500 has recently picked up but remains broadly in line with the past 12 months and has arguably been spurred by the Evergrande saga rather than by US (or global) macro data releases. Finally volatility and directionality in Brent crude oil prices have also been far more limited in recent weeks.That is of course not to say that US macro data have not mattered and will not matter going forward. They have and they will. At the very least macro data are a key input into Federal Reserve monetary policy which in turn has a strong bearing on US and global financial markets, as evidenced by markets’ reactions to the Fed’s 16th June policy. However, our analysis suggests that financial markets have become somewhat more detached from US macro data releases, even when these have materially deviated from consensus forecasts. At the very least their direct impact on US equity and interest rate markets and global FX and commodity markets has been modest in recent months.

Macro Data Dog Not Wagging FX Market Tail

Fixed Income and Currency Strategist

Gautam Jain, PhD, CFA

With the US dollar and EM currencies on aggregate trading in a range for much of the year, their volatilities have dropped to the lowest level since the start of the pandemic. Since a drop in volatility engenders a carry-trade environment, we test this hypothesis on EM currencies and conclude that indeed currencies with high risk-adjusted carry have been outperforming, and vice versa. A currency that we continue to like from the perspective of improving carry is the Chilean peso.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.

With the US dollar and EM currencies on aggregate trading in a range for much of the year, their volatilities have dropped to the lowest level since the start of the pandemic. Since a drop in volatility engenders a carry-trade environment, we test this hypothesis on EM currencies and conclude that indeed currencies with high risk-adjusted carry have been outperforming, and vice versa. A currency that we continue to like from the perspective of improving carry is the Chilean peso.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: Are EM Currencies in a Carry-Trade Environment?

In the past couple of months governments in Asia-Pacific have materially accelerated the administration of Covid-19 vaccines.But because of low starting points, vaccination rates remain low compared to the EU, US and UK and even a number EM economies (including Turkey). The exceptions are Korea, Malaysia and Japan which have now administered a similar number of doses per capita as the US, while Singapore has pulled further ahead. In countries where governments started to vaccinate early such as the US and in particular the UK, vaccine roll-outs have slowed materially in the past nine weeks. These countries are taking additional measures to encourage those not yet vaccinated to do so and there is talk of jabs for under-18s and of booster jabs at least for the most vulnerable.The picture for the increase in Covid-19 deaths since early July is even more granular. In countries where governments started vaccinating early and now have high rates of vaccination, including the UK, US and EU, the number of deaths has perhaps unsurprisingly increased only marginally. The rate of increase and total number of deaths remain negligible in New Zealand despite a sill modest vaccination roll-out. It has to varying degrees been a similar situation in Australia, Korea, Japan, Singapore and Taiwan.The increase in deaths has also been modest in India and Philippines, albeit from a higher starting point. The increase in deaths has been far higher in Indonesia, Malaysia and in particular Thailand.  Vaccination rates are a critical variable from a health and economic perspective but their direct impact on currencies has been mixed.New Zealand Dollar has outperformed but is not particularly expensive in our view. Going forward we would expect it to remain well supported even if still vulnerable to pull-backs.

In the past couple of months governments in Asia-Pacific have materially accelerated the administration of Covid-19 vaccines.But because of low starting points, vaccination rates remain low compared to the EU, US and UK and even a number EM economies (including Turkey). The exceptions are Korea, Malaysia and Japan which have now administered a similar number of doses per capita as the US, while Singapore has pulled further ahead. In countries where governments started to vaccinate early such as the US and in particular the UK, vaccine roll-outs have slowed materially in the past nine weeks. These countries are taking additional measures to encourage those not yet vaccinated to do so and there is talk of jabs for under-18s and of booster jabs at least for the most vulnerable.The picture for the increase in Covid-19 deaths since early July is even more granular. In countries where governments started vaccinating early and now have high rates of vaccination, including the UK, US and EU, the number of deaths has perhaps unsurprisingly increased only marginally. The rate of increase and total number of deaths remain negligible in New Zealand despite a sill modest vaccination roll-out. It has to varying degrees been a similar situation in Australia, Korea, Japan, Singapore and Taiwan.The increase in deaths has also been modest in India and Philippines, albeit from a higher starting point. The increase in deaths has been far higher in Indonesia, Malaysia and in particular Thailand.  Vaccination rates are a critical variable from a health and economic perspective but their direct impact on currencies has been mixed.New Zealand Dollar has outperformed but is not particularly expensive in our view. Going forward we would expect it to remain well supported even if still vulnerable to pull-backs.

We suggest taking profits on our long-standing recommendation to buy the Mexican peso against the Canadian dollar. The peso has been among the best-performing currencies in EM this year helped by the central bank’s surprise rate hike at the last meeting. The Canadian dollar, meanwhile, has underperformed following last month’s dovish taper by the central bank. We remain constructive on the peso but opt to close the trade as we see the risk that the central bank conveys a dovish message at the next meeting even as it raises the policy rate.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.

We suggest taking profits on our long-standing recommendation to buy the Mexican peso against the Canadian dollar. The peso has been among the best-performing currencies in EM this year helped by the central bank’s surprise rate hike at the last meeting. The Canadian dollar, meanwhile, has underperformed following last month’s dovish taper by the central bank. We remain constructive on the peso but opt to close the trade as we see the risk that the central bank conveys a dovish message at the next meeting even as it raises the policy rate.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: Take Profits on Long Mexican Peso Vs Short Canadian Dollar

In our monthly trade ideas recap note, we provide a performance update of the trade recommendations in FX and rates that we make weekly and discuss the new recommendations as well as those we closed over the past month. We have made a total of 21 trade recommendations so far, of which 15 are in the money.

In our monthly trade ideas recap note, we provide a performance update of the trade recommendations in FX and rates that we make weekly and discuss the new recommendations as well as those we closed over the past month. We have made a total of 21 trade recommendations so far, of which 15 are in the money.

Alpha Bites: Performance Summary of Trade Recommendations – August 2021

Malaysia

The Malaysian ringgit is the official currency of the Federation of Malaysia. 

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Macro Data Dog Not Wagging FX Market Tail

US Dollar, Treasury yields, US equities and even crude oil price detached from still volatile US macro data (inc inflation, payrolls and consumer...

Olivier Desbarres

FX Dashboard: Are EM Currencies in a Carry-Trade Environment?

As the volatilities of the US dollar and EM currencies have dropped, we test the hypothesis and conclude that EM FX is in a carry-trade...

Gautam Jain, PhD, CFA

Vaccination and Currency Immunity

Vaccination rates matter but for some Asia-Pacific countries, economies and currencies they are not proving to be a panacea.

Olivier Desbarres

FX Dashboard: Take Profits on Long Mexican Peso Vs Short Canadian Dollar

We suggest taking profits on our long-standing recommendation to buy the Mexican peso against the Canadian dollar. The peso has been the best...

Gautam Jain, PhD, CFA

Alpha Bites: Performance Summary of Trade Recommendations – August 2021

We provide a performance update of all our trade recommendations along with discussing the new trades from last month. We have made a total of 21...

Gautam Jain, PhD, CFA

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