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By Bilal Hafeez 05-12-2019
In: post | Newsletter

Macro Hive Exclusives: Sterling Crisis / Fed ‘Not QE’ To ‘QE’ / Booming FX Carry

(4 min read)
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The pound is on a tear. Against the dollar, it has jumped comfortably above 1.30. Clearly, FX markets are thinking that a Conservative victory next week is a sure thing. But in our first piece, seasoned economists John Llewellyn and Russell Jones argue it may not all be plain sailing. The probable worsening in the UK fiscal picture could even see a sterling crisis.

Then we have US rates guru George Goncalves update us on how the Fed will manage liquidity issues into year-end. There’s even the possibility that by early next year the Fed could engage more formally in QE. A weak US labour report may also give the Fed an economic reason for such a dovish action. I look at longer-term trends in the US labour market and find that most recent jobs created have been in mining, construction, and transport. Not really the jobs of the future…

Finally, some may have viewed this year as dull for FX, but one FX investment strategy has delivered stellar returns – the FX carry trade. I take a closer look in the final report for today.




UK Fiscal Policy – A Dangerous Change Of Regime (4 min read) The major UK political parties are putting forward wild fiscal proposals that risk sparking a sterling crisis.

The UK general election debate is unedifying. The middle ground has largely been abandoned, and the major political parties are enthusiastically employing the intemperate rhetoric and deceitful tactics of populism.

This is hardly a surprise. Populism is a global phenomenon, and additionally in the UK the Brexit imbroglio has poisoned the political well. The country is frustrated and riven. So anything that can move the discussion on from Britain’s EU exit – however tenuous its relationship with reality – is gladly embraced. But predicting the electoral outcome is nigh on impossible at this stage: deep divisions cut across traditional party lines, enormously complicating the psephological arithmetic.

( John Llewellyn | Russell Jones | 5th December, 2019 )



Fed’s Challenge To Administer Liquidity Into Year-End And Beyond (5 min read) Even with hundreds of billions of dollars in new liquidity created out of thin air, it’s too soon for the Fed to signal a clear coast for repo markets. On the one hand, through heavy liquidity dosages the Fed has doused the fire; but on the other hand, we do not know if that dosage was too much or too little. The true test still lies in the weeks around year-end.

( George Goncalves | 5th December, 2019 )

Who’s Got The Jobs Under Trump (2 min read) This Friday we get the US employment data. We should see a pickup in payroll growth after two months of decline. Partly, this will have been due to a bounce back in GM-strike related employment. The report will probably assure the Fed and add to their conviction that keeping rates on hold for the foreseeable future is the right option.

( Bilal Hafeez | 2nd December, 2019 )






Wow… What A Year For FX Carry Trades (2 min read) If you looked only at the dollar and FX volatility, 2019 may have seemed a dull year. The dollar is up, but it’s been a choppy and modest ascent. But this narrow view would miss the anything but dull performance of one particular type of FX investment strategy: the carry trade. This year, it has delivered stellar returns. A basket of global FX carry trades has delivered returns of close to 15%.

( Bilal Hafeez | 5th December, 2019 )



(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.)