Game of Clones

 

Yes – Game of Clones – Central Wankers

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On 27 February this year in Shanghai there was a G20 meeting – the G20 being the key players in global finance from the 20 biggest economies – commentators suggested that a deal had been reached to curb USD strengths or at least no longer weaken their own currencies.

Thereafter the USD clearly did weaken across the board – which allowed a number of markets to recover.

Whether this was the agreement or not – it is obvious that they know not what they do – with a fair few countries caught in the crosshairs of Japan’s negative interest rate – those being the major trading partners – China, Australia and to a lesser extent Singapore.

The ECB delivered a rate cut in March – strengthened the EUR:USD pair and appears on the face of it that the EUR’s trade-weighted index has been more stable – the financial conditions in Europe have eased a tad – with the exception of Italian banks – and the zone’s inflation expectations recovered.

It amazes me of the ignorance of the G20 – here they were planning something – anything to relieve the stresses on the world currencies and in particular the strength of the USD – yet they are blinded by the simple fact that they cannot control capital flows.

 

The Japanese Yen is a prime example – the Bank of Japan in its attempt to ease and deflate the Yen further – introduced negative interest rates – and achieved a further devaluation of the yen – overall a 39 plus percent devaluation of the yen over 4 years.

But which Bank in their right mind would lend monies on negative interest rates – paying the borrower to take the money – this is a recipe for a disaster – and as I mentioned before in a prior blog – the BoJ knew this.

The problem was – the Yen had to retrace some of those losses – the procrastinations of Yellen opened the door – capital sought Yen – and now the BoJ is attempting to stop the Yen strengthening against the USD.

So the currency wars a far from settled – the USD appears to me to be oversold and strength of the global reserve currency looks to continue.

I have predicted a June rate increase by the U.S. Fed – the reason is simple – in that if the Fed does not raise rates after seven years of apparent “growth” – then its credibility suffers.

For some reason one thing the Fed looks at is the Job Report Data – U.S. employment data – whilst December’s figures showed 292,000 increase – way in excess of what was anticipated – the recent data is dismal.

Real Time Economics (1) reported this data – with the majority of jobs employers are creating ‘in their own words’ – not good – part time – temporary or seasonal minimum-wage positions offering scant benefits – mostly in the service sector.

I suspect that a fair few observers agreed that it comes down to the quality of the jobs not the quantity – that message is finally getting through and the subsequent effect on the U.S.D. has been felt. My feelings were always that the average hourly earnings were flat and or declining – prior to December – borne out in December’s figures.

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Chart courtesy of Real Time Economics – if one is interested – the data can be sourced from the link below. (1)

So – if the Fed raises rates – that accelerates the capital flow into USD and the U.S. – pushing the dollar higher – which then triggers mayhem in China – emerging markets – commodity markets and U.S. corporate profits earned overseas.

China is ‘ad nauseam’ and will continue on this track – the trade balance was published over the weekend with a startling headline of a $45.6 billion surplus.

Dig down and exports fell by 1.8 percent on the year – much worse than the ‘unchanged’ forecasts and imports overall were way down by a whopping 10.9 percent – this is the eighteenth (yes 18th) consecutive month of declines and this had a negative impact on the countries that supply China and which supply commodities – because China’s imports are dominated by raw material products.

Get that commodity producers – it ain’t getting any better.

Global trade will continue to decline for the foreseeable future.

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The Federal Reserve should increase interest rates – if anything to ‘normalize’ rates – to restore credibility to the U.S.D. – to offset the demand for precious metals and allow volatility to abate – but hey – why create a global stable currency – whereby the knock on effect will be for indebted countries will be greater interest payments due to their ridiculous debt levels.

Then again – this may be my illusion of credibility.

No one is a winner – so let the Game of Clones (aka Central Bankers) continue with the wars.

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1. http://blogs.wsj.com/economics/2016/05/11/just-how-good-or-bad-are-all-the-jobs-added-to-the-economy-since-the-recession/

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