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Bank Of England To Use Maradona Playbook (3 min read)

By Jason Simpson | June 17, 2019

The Bank of England’s Monetary Policy Committee (MPC) appears to have delivered a key message: rates will have to rise. Yet UK interest rate markets are pricing a 20% chance of a 25bp rate cut by January 2020, and an

US Growth In Good Zone For Equities (2 min read)

By Bilal | June 13, 2019

Over the past week, we’ve seen a raft of US activity data for May. Manufacturing PMIs surveys (ISM and Markit) were weak, and so was labour market data. Services PMI data were mixed (ISM up, Markit down). Small business sentiment

Fed Needs 50bps Cut For Impact (3 min read)

By George Goncalves | June 13, 2019

A combination of disappointing US jobs and inflation data, dovish Fed comments, and concerns over trade deals has brought Fed rate cut expectations into upcoming FOMC meetings. The next meeting in June has a small probability of rate cut priced-in,

Best Of the Web

June 6, 2019

Japan does MMT?  Answer is no. “Japan shows that all of mainstream theory and policy is wrong. It is the best example of a country that always chooses the anti-MMT policy response to every ill that ails the country.”

Alpha Opportunities in European Fixed Income – Without Adding Risk PIMCO likes earning roll-down in the German curve, Danish mortgages and trading the futures-cash basis in German bonds.

Identity, beliefs, and political conflict Using social psychology, authors find that globalisation clusters society in a nationalist versus cosmopolitan cleavage instead of the traditional left versus right. This may dampen demand for redistribution despite potential increases in income inequality.

Market Valuation, Inflation and Treasury Yields: Clues from the Past and Is the Stock Market Cheap?  Features some nice equity valuation charts. The Author concludes valuations are unchartered territory (20+ p/e with yields below 2.5%), but Fed support could keep it there

Concentration in cross-border banking BIS quarterly finds “A small number of very large cross-border links dominate global cross-border bank credit. Even after the Great Financial Crisis (GFC), concentration in interbank links remained high.”

China Digest From the Web

June 13, 2019

China to boost social credit system with new market regulatory measures China’s social credit system which amongst other things rewards and penalises acts of good or bad faith will now be extended to the business sector. Very Orwellian.

TRADE WAR: China’s People’s Daily: Op-ed-Tariff hikes are ‘bricks’ escalating tensions rather than ‘ladders’ leading to solution. It opens with a Milton Friedman(!) quote: “The most effective protection to a consumer is free competition at home and free trade throughout the world,” and goes on to attack the use of tariffs in trade policy. Worth reading with the US response this tougher China stance U.S. Trade Representative and the U.S. Department of Treasury respond to the “White Paper” issued by China

Inside Huawei’s secretive plans to develop an operating system to rival Google’s Android The OS issue took an extra urgency after the US government in mid-May placed Huawei and its affiliates on a trade blacklist. One of the biggest technical challenges for the Huawei OS under development has been its compatibility with Android.


5 Podcasts Worth Listening To

June 18, 2019

I’ve paired these podcasts to provide context for the recent HK protests. The first, Why Hong Kong Is Still Protesting (The Daily, 23 min), runs through the events that led to approximately one in seven Hong Kong residents protesting in the streets this past weekend. It started a year ago, with an incident in Taiwan that led to the need for an extradition treaty between HK and Taiwan. This, in turn, resulted in a wholesale review of HK’s extradition treaties with all countries including China.  Hong Kong residents see an extradition treaty with China as a loss of independence and have reacted with protests.

The parallels with the Tiananmen Square protests in 1989 bring us to the second podcast, which features an interview with one of the now exiled student leaders of the Tiananmen protests:  A student leader 30 years after Tiananmen: Wu’er Kaixi reflects on the movement (Sinica, 1hr 22 min). The first hour of the podcast describes the lead up to the protests. One point stands out in particular: the Chinese student protesters took much inspiration from other democratic movements of the time, such as Poland’s Solidarity movement and Gorbachev’s perestroika and glasnost reforms. One difference today, then, is that the international trend is if anything towards more authoritarianism, rather than liberal democracy, so there may be less international inspiration to sustain the latest protests.


Freshly Squeezed Working Papers

Give Credit Where Credit Is Due: What Explains Corporate Bond Returns?

May 21, 2019

Give Credit Where Credit Is Due: What Explains Corporate Bond Returns? AQR paper finds finds that options markets explain a great deal of credit returns. Two features of corporate bonds

The Risk of Returning to the Zero Lower Bound

May 21, 2019

The Risk of Returning to the Zero Lower Bound San Fran Fed writes “that there currently appears to be a low risk of the economy returning to the zero lower bound

Interest rates, excess liquidity and retail deposits: banks’ reaction to unconventional monetary policy in the euro area

May 21, 2019

Negative interest rates, excess liquidity and retail deposits: banks’ reaction to unconventional monetary policy in the euro area ECB finds that negative rates actually do promote loan growth contrary to

Investor Positioning

June 18, 2019

Forecasts: US 10y Yields

June 18, 2019

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