The fall in global bond yields favours the appreciation of assets that offer zero or negative returns, such as gold and the Swiss franc. Thomas Jordan reiterated that “the SNB will remain active in the foreign exchange market as necessary” to keep the Swiss franc down. But on closer examination, they have already bought CHF 36 billion in the last six months.
In the last few days, the US Dollar gets a boost as investors scale back aggressive Fed rate cut bets. Indecision over the EU’s top jobs further weighs on the shared currency. Traders now eye Euro Area and US manufacturing PMIs for a fresh impetus.
“Don’t fight the Fed… nor the flow”
A month ago, we concluded our analysis with this sentence: “Without a recession, the Fed has no convincing reason to reduce
its key rates”. We were wrong. While the U.S. economy will not fall into recession, the Fed, like other major central banks,
has chosen to be much more proactive than in the past to address the current economic downturn. A statement
pronounced by Jerome Powell during his last question-and-answer session summarises the strategy of modern-day central bankers: “An ounce of prevention is worth more than a pound of care”.
The Bank of Japan held over $250 billion (28 trillion yen) in the Nation’s ETF funds, which represents 4.7% of the total market capitalisation. The Central Bank was among the top 10 for 49.7% of all Tokyo-listed enterprises. Should investors find this non-conventional monetary policy comforting?
The forex market has been abnormally stable since the beginning of the year. One of the best ways to observe the facts is to look at the evolution of the CVIX. Similarly to the well-known Chicago Board Options Exchange Volatility Index (VIX), which measures the implied volatility of equity markets, the Currency Volatility Index (CVIX) measures the implied volatility of currency markets. Thus, it is a measure of the market’s expectation of future currency volatility and can be used as a benchmark of risk. Recently, the currency volatility index fell sharply to its lowest level since 2014 in April (see chart 2). More specifically, the industry’s most traded EUR/USD pair is in its narrowest range recorded on a quarterly basis.
The biggest elections in history began on Thursday, April 11. They are taking place in India and will be held until May 19. Some 900 million Indians are called upon to choose the next government for this nation of 1.3 billion people, the most populous democracy in the world. These elections serve as a vote for or against the Conservative Prime Minister. Narendra Modi, 68, is running for a second five-year term with the Bharatiya Janata Party (BJP, Indian People’s Party).
While equity investor sentiment oscillates between, on the one hand, the euphoria of having the support of central bankers and their highly accommodating monetary policies and, on the other hand, the pessimism of a misguided global economic cycle combined with trade war and high valuation levels, there are independent investment themes. In a way that is far removed from these tricky issues, the US healthcare sector can outperform all the others (see Chart of the Week). The reasons are both structural and cyclical.
The profit season has begun, and it is usually a source of happiness for investors. Equities tend to fluctuate sharply after the release of earnings and this can be a lucrative opportunity. This time, many companies are beating expectations, helping to drive main indices to record levels. The most famous of them, the S&P 500 is approaching its historic high, where from 21 September 2018 it reached 2940.91 dollars (see chart 2). Hopes that it will break its psychological resistance, supporting the current bull market, is therefore high. On the other hand, for companies that published earnings below expectations, the punishment is more severe than usual.