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

Turkey's central bank is set to cut the policy rate either at the upcoming meeting on Thursday or in October at the latest, in our view. The trade-off that Governor Kavcıoğlu faces is to either start cutting rates soon, which may lead to a rise in volatility particularly for the currency, or risk being dismissed by the president as he has done with the last three governors, which may cause an even greater turmoil in the Turkish financial markets. In a recent speech, the governor emphasized core inflation, which eased last month, unlike the headline inflation, likely setting up the stage for lowering rates. In addition, breakeven inflation has also come off the peak. If the central bank delivers a rate cut as we expect, then the impact on domestic assets as well as the rest of EM should be minimal, in our view.Separately, the attached file is a snapshot of the EM 10y rates market in which we seek to identify the leaders and laggards among countries by comparing the performance of each to its history as well as to other countries based on their respective betas to an EM rates index.

Turkey's central bank is set to cut the policy rate either at the upcoming meeting on Thursday or in October at the latest, in our view. The trade-off that Governor Kavcıoğlu faces is to either start cutting rates soon, which may lead to a rise in volatility particularly for the currency, or risk being dismissed by the president as he has done with the last three governors, which may cause an even greater turmoil in the Turkish financial markets. In a recent speech, the governor emphasized core inflation, which eased last month, unlike the headline inflation, likely setting up the stage for lowering rates. In addition, breakeven inflation has also come off the peak. If the central bank delivers a rate cut as we expect, then the impact on domestic assets as well as the rest of EM should be minimal, in our view.Separately, the attached file is a snapshot of the EM 10y rates market in which we seek to identify the leaders and laggards among countries by comparing the performance of each to its history as well as to other countries based on their respective betas to an EM rates index.

Rates 10y Dashboard: Bucking the Trend in the Rest of EM, Turkey Looks Set to Cut Rates

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?

We are not expecting the FOMC meeting tomorrow to be market-moving. Having said that, with the (negative) correlation between the US dollar and EM currencies the highest since 2012, any implications for the dollar from the meeting tomorrow would ripple through EM currencies. This impact is likely to get exacerbated by the rising correlations within the EM FX universe, which implies that we are currently in a "risk-on/risk-off" period.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 are not expecting the FOMC meeting tomorrow to be market-moving. Having said that, with the (negative) correlation between the US dollar and EM currencies the highest since 2012, any implications for the dollar from the meeting tomorrow would ripple through EM currencies. This impact is likely to get exacerbated by the rising correlations within the EM FX universe, which implies that we are currently in a "risk-on/risk-off" period.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: Cross-Correlations Between EM Currencies Rise Sharply

Long-end rates in EM have not kept up with the rally in US rates, with the notable exception of Turkey. The rally in Turkish rates has been impressive especially when factoring in the recent spike in inflation. Nevertheless, Turkish rates should continue to outperform as we expect the central bank to ease later this year and the macroeconomic and technical backdrops have improved. However, any position in Turkey is inherently risky because of political meddling in monetary policymaking.Separately, the attached file is a snapshot of the EM 10y rates market in which we seek to identify the leaders and laggards among countries by comparing the performance of each to its history as well as to other countries based on their respective betas to an EM rates index.

Long-end rates in EM have not kept up with the rally in US rates, with the notable exception of Turkey. The rally in Turkish rates has been impressive especially when factoring in the recent spike in inflation. Nevertheless, Turkish rates should continue to outperform as we expect the central bank to ease later this year and the macroeconomic and technical backdrops have improved. However, any position in Turkey is inherently risky because of political meddling in monetary policymaking.Separately, the attached file is a snapshot of the EM 10y rates market in which we seek to identify the leaders and laggards among countries by comparing the performance of each to its history as well as to other countries based on their respective betas to an EM rates index.

Rates 10y Dashboard: Are Rates in Turkey Due for a Reprieve?

Turkey

The Turkish lira is the official currency of the Republic of Turkey. 

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TRY (USDTRY CURNCY)

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

Rates 10y Dashboard: Bucking the Trend in the Rest of EM, Turkey Looks Set to Cut Rates

Turkey's central bank is set to cut the policy rate either at the upcoming meeting on Thursday or in October at the latest, in our view. If it...

Gautam Jain, PhD, CFA

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

FX Dashboard: Cross-Correlations Between EM Currencies Rise Sharply

While we are not expecting the FOMC meeting tomorrow to be market-moving, we need to watch for any impact on the dollar as it would ripple through...

Gautam Jain, PhD, CFA

Rates 10y Dashboard: Are Rates in Turkey Due for a Reprieve?

Long-end rates in Turkey have rallied despite the recent spike in inflation. Despite risks, we expect the outperformance to continue on the back of...

Gautam Jain, PhD, CFA

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