The Dollar Moves Up on Another Strong U.S. Jobs Report

The strength of the US employment report is seeing the dollar jump across the board.  The divergent theme is out in relief.  The 321k rise in non-farm payrolls is the strongest print of the year and is the second monthly increase above 300k since early 2012 (the other one being this past April).  On top of that, the back months’ figures were revised up by 44k.  

Oil, Junk Bonds, and Maybe the Next Financial Crisis

The oil and gas boom in the United States was made possible by the extensive credit afforded to drillers. Not only has financing come from company shareholders and traditional banks, but hundreds of billions of dollars have also come from junk-bond investors looking for high returns. 

Junk-bond debt in energy has reached $210 billion, which is about 16 percent of the $1.3 trillion junk-bond market. That is a dramatic rise from just 4 percent that energy debt represented 10 years ago. 

Mario Draghi Takes Center Stage

The ECB meeting or more precisely, the press conference, is the main event of the day, and possibly of the week and month.  ECB President Draghi and Vice President Constancio have expressed heightened urgency to boost inflation as fast as possible.  This has been countered by others arguing to give other new initiatives, including the second TLTRO (next week) a chance to work.  Moreover, Bundesbank's Weidmann has argued that the drop in oil prices will also provide stimulus that had not been counted on previously.  

Religion's Place in Japan's Liberal Democratic Party

With the snap election in Japan on 14 December looming, Japanese voters may not realise exactly what they are bargaining for if they re-elect an Abe-led Liberal Democratic Party government as expected. The extensive support for state sponsorship of Shinto in the Japanese Diet, and among members of Prime Minister Shinzo Abe’s cabinet, indicates that elements of State Shinto are returning to the centre of nationalist politics in Japan. This could have a serious influence on freedom of religion and foreign policy in Japan.

Fed Governors Comment that a Mid-2015 Rate Hike is Still 'Reasonable'

The US dollar is extending its advance as the divergence theme moves into overdrive.  The dollar has drawn close to JPY119.50.  The euro has fallen to new lows near $1.2320, turning back from $1.25 on Monday.  The Australian dollar briefly fell below $0.8390.  

The main exception is sterling, which is holding its own after a stronger than expected service PMI.  Although it slipped below yesterday's low, Monday's low near $1.5585 remains intact, and sterling is trading around 3/4 a cent above there near midday in London.  

China's International Relationships and How They are Playing in Asia

One day in June 2013, President Xi Jinping and his wife and First Lady Peng Liyuan touched down in Trinidad and Tobago. As the pair embarked the aircraft and strode down the gangway, there was something unmistakably ostentatious — a swagger even — in Peng’s turquoise attire and Xi’s matching tie. It marked a shift in China’s approach to international relations.

Currency Depreciation as Monetary Policy

Megan Trainor tells us it is "All About the Base".  It seems like many reporters and analysts may be mistaking her lyrics as it is all about debase, as in currency wars. 

The latest surge of currency war stories follow the unexpected decision by the Bank of Japan to dramatically increase its Qualitative and Quantitative Easing at the end of October.  It was the same week that the Federal Reserve announced the end of its asset purchase operations.  Since the BOJ's decision, the yen has depreciated by 8.3%.  

Central Bank Meeting Week Continues

After yielding ground yesterday, the US dollar comes back bid today.  The main driver is the divergence that favors the US.  Specifically, yesterday two people we have identified as part of the troika at the Federal Reserve, from where policy signals emanate, played down the disinflationary threat of the fall in oil, saying it would likely be temporary. 

OPEC Forced to Change its Tactics

OPEC is a cartel but it is a strange species in the sense that it only accounts for about 40% of oil production.  In the past exerted its influence by cutting production, as in 2008, and driving up prices.  Now it faces a different challenge.  New supply has come on the market, which threatens the cartel's position. 

Three Investment Themes Perpetuate and are Strengthening

Throughout the last few months, we have identified three forces that are shaping the investment climate:  the economic and monetary divergence that favors the US, the decline in commodity prices, and a slowing of China. These forces remain intact.  If anything, they have strengthened and reinforced each other.