Currency Currents, 01/05/09

Key News

  • The world’s biggest investment funds are cutting exposure to US and UK government bonds amid fears that rising public debt and the withdrawal of central bank support for their economies could threaten global recovery. (FT)
  • US (black) vs. UK (red) Yield Curve:

    US vs. UK Yield Curve

  • Gold may attract far more punters and column inches but it was the red metal, not the yellow one, that truly shone in 2009. Copper prices surged 140 per cent in 2009 and are now up over 160 per cent since their December 2008 low, compared with a roughly 25 per cent gain for both gold and the CRB Index of commodities. There is no break in the trend so far this year either as miners at a big Chilean producer went on strike this week, sending London spot prices to $7,450 a tonne, their highest since Lehman’s collapse.
  • There are many reasons to doubt the rally’s staying power though. Much of the supposed incremental demand for copper is still more theoretical than real, allowing inventories to recover smartly since last summer when record Chinese stockpiling slowed. US data suggest that modest recoveries in homebuilding and auto production are underway, both bullish indicators, but these, along with an improbable continuation of China’s building boom, are already baked into prices. (FT Lex)

    Copper Daily:

    Copper Daily Chart

  • Templeton’s Mark Mobius says emerging market stocks could lose 20% on over supply from IPOs. (Bloomberg)
  • Emerging Market Stock Index Daily – Cha-ching!

    Emerging Market Stock Index Daily Chart

  • A gradual appreciation of exchange rates in emerging Asia would lead to lower relative prices for traded goods, thereby raising purchasing power and stimulating domestic demand. It would push the export sector to improve productivity and invest in high value-added sectors. It would help to bring monetary conditions in these countries more closely into line with domestic requirements and avoid importing the monetary stance of the US, which is evidently too loose for fast-growing economies and might fuel asset price bubbles. It would also reduce the steady accumulation of international reserves, even after the crisis. A more balanced exchange rate regime would encourage higher savings in countries with current account deficits as well as reduce protectionist pressures, now on the rise in response to competitive distortions.
  • USD-Singapore $ (black) and USD- Chinese Yuan (red) and USD-Canadian $ (purple and for relative purposes) Weekly:

Quotable

“No one can predict shocks. But the theory of the double dip is very clear in one important respect: Shocks can deal lethal blows to anemic recoveries. That remains a real risk in this still fragile post-crisis climate. In contrast to the denial prevalent in today’s ebullient financial market climate, I would assign about a 40 percent chance to a global double dip at some point in 2010.”

                             Stephen Roach