Skip to main content

The Euro is on fire!

Over the past 3 months the Euro has exploded (8%) against the US dollar, moving from 1.04 to 1.12 in the space of only 90 days, this is a massive movement in the European currency and is difficult to understand or explain.

First, is the Euro improving or is the dollar falling off a cliff?  These may seem to be the same thing but they are not; looking at other Euro pairs (Yen, CAD, Peso) and you get different result;

The Mexican Peso -- third most traded currency (I know who knew) is looking at a price move of nearly 7% over the past 6 months, but of course the Peso was seriously devalued in 2016 -- a reflection of all things Trump -- since then the Peso has returned to its long term trend (slow 3-4% annual devaluation to reflect the higher inflation rate).

The Yen:  After the November election the Yen took a fall from 104 to 118 against the USD, this is slowly reversing itself towards 110/11 (seems to be an appreciation trend

The CAD:  has remained largely unchanged around 1.3 its got ups and down but the reality is that the CAD (that was trading above the USD in 2007 is now trading at a 30% discount to the USD -- talk about cost devaluation for Canadian manufacturing & services...

Sterling:  No trend the price has been more about the UK's economy and the BREXIT process, the pound has gone from 1.5 to 1.3 in the past 9 months

Back to the Euro:  There European experience while in the same "time zone" as the Yen and the Peso has been far more explosive; it could be that Europeans are feeling that the US economy is done and gone -- "sell and may and go away" trend -- it could be a number of factors, but there appears to be a strengthening of the European cohesion after the Brexit vote, there seems to be greater reassurance that despite the UK and Greece that Europe is going to survive.

There is no doubt that the election of Macron (centrist) in France and the serious defeat of LePen -- far worse than anyone anticipated help to cement the democratic sense that the European experiment will survive (it may or may not).  The market has spoken, there is no doubt that the direction is confidence in Europe.



Comments

Popular posts from this blog

Trucker shortage? No a plan to allow driverless rigs

There are still articles on how America is running out of truckers -- and that its a huge problem, except its not a problem, if it was a problem salaries would rise to so that demand would clear. Trucking is one of those industry where the vast majority of participants are owner/operators and therefore free agents.

Salaries and cost are extremely well know, "industry" complains that there are not enough truckers, yet wages continue to fall... Therefore there are still too many truckers around, for if there was a shortage of supply prices would rise, and they don't.

What there is though is something different; there is a push to allow automatic rigs to "operate across the US", so to encourage the various authorities to allow self driving rigs you talk shortage and hope that politicians decided that "Well if people don't want to work, lets get robots to do the work" or words to that effect.

This has nothing to do with shortage of drivers, but every…

Every punter says oil prices are on the rise: Oil hits $48/bbl -- lowest since September 2016

What the hell?

How could this be, punters, advisors, investment bankers all agreed commodity prices  in general and oil prices in particular are on the rise...its a brave new era for producers and exporters -- finally the world is back and demand is going through the roof, except not so much!

What happened?  Well energy is complicated, the world operates in a balance -- 30 days of physical reserves is about all we've got (seriously) this is a just in time business.  So the long term trend always gets hit by short term variations.

Global production over the past 12 months has risen by somewhat less than 1.5% per annum.  As the world market changes production becomes less energy intensive (maybe), but the reality is that the world is growing more slowly -- America Q4 GDP growth was around 1.9% (annualized) Europe is going nowhere fast (the GDP growth in Germany is overshadowed by the lack of growth in France, Italy, Spain (lets say 27 Euro members generated a total GDP growth of 1.2…

Paying for research

This morning I was reading that CLSA -- since 2013 proudly owned by CITIC -- was shutting down its American equity research department -- 90 people will be affected!

Now the value of a lot of research is limited, that is not to say that all research is bad. In fact, I remember that GS's Asia Aerospace research was considered the bible for the sector.  Granted, there was little you could do with the research since the "buy" was for Chinese airlines...that were state owned.  Still it was a vey valuable tool in understanding the local dynamics.  It seems that the US has introduced new legislation that forces brokers to "sell" their research services!  Figures of $10,000 an hour have been mentioned...

Now, research can be sold many times; if GS has 5000/6000 clients they may sell the same research 300x or 400x (I exaggerate) but this is the key -- Those who buy the research are, I presume, prohibited from giving it away or selling it, at the same time the same rese…