This week’s article covers the cooling labor market, the QRA, Canadian employment data, and the structural bear case for the Euro — along with what’s driving the latest equity weakness.
Great piece Mr. Repo, thank you for sharing your thoughts!
Similarly to your case, I closed my long USDCAD trade, giving back probably half of the gains.
I'm still not convinced that it doens't trade lower though, but the thesis has been challenged enough for me to close.
Even if Canada bottoms out, the beta between the US and CAD economy is very strong, and I still believe US outperformance is base case, though maybe that feels a bit more priced in now.
A quick question if possible regarding reserves management and the differences between FED and BoE/ECB.
If I understood correctly, the "supply focus" from the FED refers to setting a level (Around 11% of reserves/GDP) and making sure reserves are at least there, whereas BoE/ECB will be a bit more reactive to REPO market "demands" from different players?
Related, what do you think is the structural pressure in markets from a FED that's slowly going to remove itself from the longer end (likely as treasury rebuilds the coupons/bills ratio) and focus more on money markets/bills? I'm assuming a return to more average steepeness in 2s10s?
1) I think understood it correctly. The Fed tries to estimate an ample level of reserves and then supplies reserves via QE/SRF. ECB/BoE do not plan to go off their LCLoR estimates - they are more demand-driven.
2) Hard to say - the effects will take a long time to show up in bond markets. Probably higher yields in general versus QE yield compression. Higher yield volatility too. Possibly steeper curve - that also depends a lot on economic conditions.
Do you see the ECB cutting in March if deflation comes in faster than expected in dec and jan? The China dumping goods story seems to be worse than thought, the ECB's paper on it shows that even they got their eyes on it.
Great piece Mr. Repo, thank you for sharing your thoughts!
Similarly to your case, I closed my long USDCAD trade, giving back probably half of the gains.
I'm still not convinced that it doens't trade lower though, but the thesis has been challenged enough for me to close.
Even if Canada bottoms out, the beta between the US and CAD economy is very strong, and I still believe US outperformance is base case, though maybe that feels a bit more priced in now.
A quick question if possible regarding reserves management and the differences between FED and BoE/ECB.
If I understood correctly, the "supply focus" from the FED refers to setting a level (Around 11% of reserves/GDP) and making sure reserves are at least there, whereas BoE/ECB will be a bit more reactive to REPO market "demands" from different players?
Related, what do you think is the structural pressure in markets from a FED that's slowly going to remove itself from the longer end (likely as treasury rebuilds the coupons/bills ratio) and focus more on money markets/bills? I'm assuming a return to more average steepeness in 2s10s?
Thank you for a great piece!
Best,
Valentino
Hey,
1) I think understood it correctly. The Fed tries to estimate an ample level of reserves and then supplies reserves via QE/SRF. ECB/BoE do not plan to go off their LCLoR estimates - they are more demand-driven.
2) Hard to say - the effects will take a long time to show up in bond markets. Probably higher yields in general versus QE yield compression. Higher yield volatility too. Possibly steeper curve - that also depends a lot on economic conditions.
Thank you Mr. Repo!
Looking forward to your next piece.
Best,
Valentino
Do you see the ECB cutting in March if deflation comes in faster than expected in dec and jan? The China dumping goods story seems to be worse than thought, the ECB's paper on it shows that even they got their eyes on it.
Do you still expect the ECB to cut rates sooner than the market ?