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Matt's Market Insights

June, 2016 Archives

Bond Mechanics in a Negative Interest Rate World

By Matthew Kerkhoff

 

We’re going to talk about bonds today but before we get to that, I want to briefly point out why the Brexit event is impacting U.S. markets so heavily.

 

As we’ve discussed many times here at DTL, the strength of the U.S. dollar dictates the cost of U.S. goods to our trading partners. When the dollar goes down, our goods go on sale; when the dollar goes up, it’s equivalent to a price hike across the board. And it goes without saying that higher prices stifle demand, which means less revenue, profits etc.

 

With Europe thrown back into turmoil, investors are flocking to the U.S. dollar for safety. This is how the dollar reacted on Friday and today.

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Catering to the New Investment Climate?

By Matthew Kerkhoff

 

Cheap money is supposed to spur businesses and consumers to spend and invest. That’s the whole point of lower interest rates. As that money flows through the economy, it creates jobs, innovation, and it (theoretically at least) drives inflation higher.

 

Inflation can then act as its own feedback loop, simultaneously eroding the drag of previous debts while also incentivizing additional spending, since prices are expected to be higher in the future.

 

That all sounds fine, but we’ve seen a distinct weakness in business investment lately, even with near-zero interest rates, and it prompts the question why.

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Why is the Japanese Yen a Safe-Haven Currency?

By Matthew Kerkhoff

 

During times of uncertainty, such as the prelude to the Brexit vote, investors tend to gravitate toward the Japanese yen. This causes the yen to appreciate, and has led to the common perception of the yen as a safe-haven currency.

 

This strengthening of the Japanese currency during periods of risk aversion has become so repetitive and ingrained that it is rarely questioned. But why is it that global investors flock to the currency of the world’s most indebted nation whenever trouble arises?

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Pushing the Reset Button

By Matthew Kerkhoff

 

In recent weeks various Fed officials have been jawboning for higher rates, which has created volatility and riled up investors around the globe. But the latest data suggests that this “data dependent” Fed may not have the pass it needs to move forward.

 

The latest jobs report was without question disappointing (only 38,000 jobs created), but what’s even worse is that it appears this latest reading may not be an anomaly, but rather the continuation of a deteriorating trend.

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