Delivering Global Macro Investment Insights

DeSaque Macro Research

DeSaque Macro Research Limited was formed by Said DeSaque in April 2012 with the view to delivering global macro investment insights aimed at providing new ideas to clients.

Said DeSaque has over 26 years of experience working as a professional economist in financial services. Prior to establishing DeSaque Macro Research, Said held positions as Senior Economist at Robert W Baird and William Blair. He began his career as a graduate at PaineWebber in 1986, where he eventually became Head of the London Economics Department.

Said takes a very keen interest in international relations, along with their implications for economic development. His research interests include the economic transformation of China and its implications for global capital markets, particularly in the United States. He is a member of Chatham House in London.

The US economy and capital markets have historically been Said’s main focus of attention. He frequently presents his views to institutional investors in diverse geographic locations. In recent years, Said has also been carefully monitoring economic developments in Asia, particularly China and Japan.

Global Economist, DeSaque Macro Research

Said Desaque

Global Economist

FX & Rates

Historically, it has been difficult for a country to enjoy an equity bull market and exchange rate appreciation indefinitely, as testified by the experiences of Japan and the US. Corporate sector performance is eventually undermined whenever currency strength becomes excessive.<figure class="editor-figure mceNonEditable"><img class="editor-image img-responsive" src="https://static-prod.smartkarma.com/images/media/000/030/292/original/yen%20dollar.png?1500881622" data-smartkarma-image-id="30292"></figure><div class="content-caption">Strong Currencies and Equity Bull Markets Do Not Last Indefinitely As Japan's Experience Testifies</div>Contrary to expectations following the US Presidential Election, the dollar has depreciated on a trade-weighted basis during 2017. Meanwhile, US equities have benefitted from easier financial conditions, which are historically associated with a weakening US currency.A weakening US currency does not always support an equity bull market, particularly if accompanied by rising bond yields due to unhinged inflationary expectations. Political pressure on Fed in 1987 produced the aforementioned scenario, resulting in a spectacular equity market crash in October.There are similarities between the current environment and what prevailed in 1987 due to looming changes of personnel on the Fed’s Board of Governors. Bond investors will demand a higher term premium and raise short-term interest rate expectations if the Trump Administration leans on the Fed next year.The world’s major central banks are struggling to achieve their inflation targets, particularly the Bank of Japan (BoJ) which has recently been forced to downwardly revise its consumer price forecasts. Governor Kuroda’s term expires next year and the legacy of his policy conduct will include the potential unsustainability of current asset purchase programmes.Both the Fed and the European Central Bank (ECB) will be wary of permitting speedy currency appreciation, particularly the latter, due its effect of accentuating imported deflation. Yen depreciation remains the most convincing route to higher inflation in Japan, thereby implying that the race to bottom in the Great Currency War is not over.

Historically, it has been difficult for a country to enjoy an equity bull market and exchange rate appreciation indefinitely, as testified by the experiences of Japan and the US. Corporate sector performance is eventually undermined whenever currency strength becomes excessive.Strong Currencies and Equity Bull Markets Do Not Last Indefinitely As Japan's Experience TestifiesContrary to expectations following the US Presidential Election, the dollar has depreciated on a trade-weighted basis during 2017. Meanwhile, US equities have benefitted from easier financial conditions, which are historically associated with a weakening US currency.A weakening US currency does not always support an equity bull market, particularly if accompanied by rising bond yields due to unhinged inflationary expectations. Political pressure on Fed in 1987 produced the aforementioned scenario, resulting in a spectacular equity market crash in October.There are similarities between the current environment and what prevailed in 1987 due to looming changes of personnel on the Fed’s Board of Governors. Bond investors will demand a higher term premium and raise short-term interest rate expectations if the Trump Administration leans on the Fed next year.The world’s major central banks are struggling to achieve their inflation targets, particularly the Bank of Japan (BoJ) which has recently been forced to downwardly revise its consumer price forecasts. Governor Kuroda’s term expires next year and the legacy of his policy conduct will include the potential unsustainability of current asset purchase programmes.Both the Fed and the European Central Bank (ECB) will be wary of permitting speedy currency appreciation, particularly the latter, due its effect of accentuating imported deflation. Yen depreciation remains the most convincing route to higher inflation in Japan, thereby implying that the race to bottom in the Great Currency War is not over.

The Great Currency War & Financial Markets: Bracing for the Final Act

USD

The Great Currency War & Financial Markets: Bracing for the Final Act