You Gotta Fight For Your Right To Parity
“Over the last eight months the USD has appreciated faster on a trade-weighted basis than at any time in the last 40 years and probably over a [longer] duration…We have now matched about 2/3rds of the 1995-2002 USD rally but it took three years to get to that point in the previous rally…and now it has taken eight months.” That being said, there are some reasons to think that maybe EURUSD parity is still a ways off: 1) “We may have moved close to the levels that some ECB Governing Council members had in mind (but could not speak publicly about), in terms of implicit Euro targets, when QE was initiated,” 2) “Our narrative around the Euro (with a focus on fixed income outflows) is starting to become very consensus,” and 3) Fed = dove. Speaking of euro targets, Nomura has hit theirs: “The bank, which was short the euro against the dollar, is closing the trade after making a profit of 5.9% as the euro kept falling.” Also, here’s something to consider: “At first flush, this all seems odd in the context of climbing stocks. So far this year, the Stoxx 600 European equity index is up by about 17%…Some analysts explain this away with hedging. ‘When euro-denominated assets rise, more euro selling is required to compensate for the higher share of euro assets in the portfolio, which in turn will drive more euro weakness’…The obvious question is when that might snap.” Meanwhile, “US yields are torn between the gravitational pull of near zero (plus or minus) European and Japanese yields and the prospect of Fed rate hikes.” Mohamed El-Erian expects “another round of ‘linguistic gymnastics’” from the Fed this week (press conference on Wednesday y’all), although he’d be pretty satisfied with a tumble removing the word “patient” from the statement. Meanwhile, Can Asia Survive (Insert Thing Here)? is being used for the dollar story.
“In the past year, Gazprom has begun a more drastic reassessment of its relations with Europe: in May it signed a $400bn contract to deliver gas to China and turned its focus to building new Asian markets for its gas…Nonetheless, Gazprom remains highly dependent on Europe, which accounts for more than 60 per cent of its revenues from gas sales.”
“As China seeks to wean itself off foreign technologies, global tech companies are weighing a number of limited options: hand over proprietary information in return for market access, form joint ventures with Chinese firms, create products or services only for the Chinese market that meet Beijing’s requirements, or leave.”
I wonder if their investors would say the same thing…