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(1) Will The FBI Interfere In The US Elections Again? (3 min read) The FBI’s late stage intervention in the 2016 US election saw previously undecided voters swing towards Trump and polls got it wrong. My take is that with the share of undecided voters much lower this time and Biden’s net favourability rating much higher than Clinton’s, polls are more likely to correctly capture voting intentions leaving Biden in a good position to win in November.
(Bilal Hafeez│ 8th September, 2020)
(2) ECB Preview: All About The Euro (4 min read) No policy announcements are expected on Thursday but there’s plenty for the ECB to discuss given the recent euro appreciation, new staff forecasts and the Fed’s shift to average inflation targeting. Caroline Grady writes on what to expect.
(Caroline Grady│ 8th September, 2020)
(3) Global COVID-19 Tracker – India Overtakes Brazil, UK Cases Rise(4 min read) India records 90,000+ new cases in a single day, but still has far fewer cases per 100,000 population than the average country. Elsewhere, US infection rates are stabilising, Spain’s second wave is worse than its first, and the UK has one of the fastest growing 3d moving averages in Europe.
(Bilal Hafeez, Sam van de Schootbrugge│ 7th September, 2020)
How to position around the US election and everything you need to know about Amazon
Broadening election hedges (Morgan Stanley, Twitter, 1 min read) MS argues to sell equity vol and buy FX/rates vol around US election dates. [Bullish FX/rates vol]
Amazon’s profits, AWS and advertising (Benedict Evans, 8 min read) Great overview of what Amazon’s true profitability is. [Bullish AMZN]
The Halloween Indicator, ‘Sell in May and Go Away’: Everywhere and All the Time (JIMF, 28 page read) Looks at all stock markets and finds ‘the effect seems remarkably robust with returns on average 4% higher during November-April period than during May-October.’ [Bullish equities after election]
BoE admits QE doesn’t work and inflation differentials between AEs and EMs
Does quantitative easing boost bank lending to the real economy or cause other bank asset reallocation? The case of the UK (BoE, 56 page read) ‘we find no evidence that suggests that QE directly boosted bank lending to the real economy’ Gulp. [Bearish UK assets]
Inflation at Risk in Advanced and Emerging Market Economies (BIS, 23 page read) Inflation risks are country-specific. In many advanced countries, the zero lower bound is shown to be a prominent source of downside inflation risk. Meanwhile, large exchange rate depreciations are associated with upside inflation risks in EMEs.
Drug pricing trends (Healthcare economist, 1 min read) Healthcare costs are a large part of core CPI – this data finds most drug prices falling.
Why the UK chancellor should avoid raising taxes and how the US stimulus was saved, not spent
Raising taxes could tip us back into recession (The Article, 5 min read) George Magnus argues there is no need to raise taxes. [Bearish UK assets]
How US consumers use their stimulus payments (Vox EU, 5 min read) ‘Most respondents report that they primarily saved or paid down debts with their transfers, with only about 15% reporting that they mostly spent it.’
Effective Demand Failures and the Limits of Monetary Stabilisation Policy (NBER, 37 page read) Leading macroeconomist Michael Woodford, explains how the COVID-19 shocks are different from the typical ‘supply’ and ‘demand’ shocks of the past. As a result, fiscal transfers are better-suited to eliminating distortions and the ineffectiveness of monetary policy is nothing to do with low interest rate environments.
AI does a better job than economists at forecasting and why EMs should avoid a services-orientated growth model
Furloughing (Cambridge INET, 34 page read) Women, and more specifically, mothers were most likely to be furloughed during the recent pandemic. They were also less likely to have their salary topped up beyond the 80% subsidy.
Artificial Intelligence Methods for Evaluating Global Trade Flows (Fed, 27 page read) An example of how AI may take economists’ jobs – algorithms are shown to provide improved predictions of future patterns of trade, relative to traditional models. This could be a game-changer for policymakers who, up and till now, use out-of-date and oversimplified econometric models.
The Great Services Illusion (Project Syndicate, 5 min read) Former MD at UNIDO argues against EM countries focusing on services to develop.
More on the US election plus rising Greek-Turkey tensions
A Big Chunk of White Americans With Degrees And People Of Color Are Behind Trump (FiveThirtyEight, 3 min read) ‘If the race is really tight, Trump’s maintaining this sliver of Black support could be critical’
Golfing with Trump. Social capital, decline, inequality, and the rise of populism in the US (CEPR) Finds that the rise in vote for Trump in 2016 was the result of long-term economic and population decline in areas with strong social capital.
Greek & Turkish Military Strength Compared (Sounding Line, 2 min read) Tensions are growing between both nations. Infographics shows Turkey has a larger military. [Bearish Greek bonds]
CS’s Pozsar on FX swaps intermediation at US banks plus the fractional volatility model
Global Money Dispatch (Credit Suisse, 17 page read) Zoltan Pozsar calculates the G-SIB risk scores for US banks and finds that JPM’s score has increased which could mean ‘much less FX swap intermediation at J.P. Morgan going into year-end and a year-end turn much worse than what’s currently being priced by the market’ [Bearish FX Xccy basis]
Long vs Short Time Scales: The Rough Dilemma and Beyond (arXiv, 33 page read) An econometrics-heavy paper tests the robustness of the rough fractional volatility model over different time scales. It confirms the Hurst exponent is less than 0.5 for shorter time scales, but exhibits a convexity effect in the log-log plot.
A digital yuan and US-China tensions plus China’s new alliance with Russia
Digital currency and the new cold war (OMFIF, 6 min read) Argues that China’s move into digital currency is a new front in the US-China cold war.
China’s semiconductor drive stalls in Wuhan, exposing gap in hi-tech production capabilities (SCMP, 3 min read) Shows China’s path to tech independence will be rocky. [Bearish China tech]
Xi says China ready to work with Russia to safeguard WWII results (Xinhuanet, 2 min read) Shows new alliances China is trying to forge. [Bullish RUB]
Benefits from higher female representation plus the number of ESG ETS continue to rise
Economic Aspects of the Energy Transition (NBER) Paper argues that we are not correctly accounting for the increase in electricity prices.
Forced Feminist Firms (NBER, 34 page read) Reduced turnover, increased productivity and female leadership are important mechanisms leading to observed performance gains of private and public firms. Mounting pressure to improve female representation can, therefore, lead to positive growth externalities.
Competition Heats Up For ESG ETFs (Banking Exchange, 3 min read) New data finds ‘number of tracker funds with a dedicated ‘sustainable’ focus hit 534 by the end of the second quarter of 2020.’
(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)