The last big catalyst for Dollar downside was Jackson Hole and Powell's very dovish speech. But that bullet has now been fired, so now it's up to the economy and whether we really go into recession. If we do, the Dollar falls further, but - if there's no recession - the Dollar will rebound...

The gold price is rising again. It fell back briefly after last week's Fed, as markets digested a more complicated meeting than they had hoped for. But now we're back off to the races and gold is resuming its rise. The world is running out of safe havens. Gold is the undisputed winner in all this...

Global yield curves are steepening, but the truth is that they're still inordinately flat in the big picture. The US yield curve is a case in point. 5y5y forward Treasury yield used to be a full 3 percentage points above 5y yield. We're going back to that... robinjbrooks.substack.com/p/the-us-yie...

Germany's real 10-year yield crossed above 1% this month, the first time it's been here since 2011. This is a destabilizing force for the Euro zone, because it pushes up yields everywhere else, including for highly indebted countries. It's already impacting real long-term yields in Spain and France.

There's instability building in EM. Best way to see that is to look at how currencies have performed since Powell's very dovish Jackson Hole speech on August 22. That speech should have lifted all EM currencies. Instead, we're seeing many EM currencies struggling. Counterintuitive and worrying...

Argentina needs to - once and for all - float the Peso. Argentina is where it is today because it once again fell into the trap of pegging to the Dollar. That's why the Peso is once again overvalued. How many more crises will it take for Argentina to finally learn this lesson? What a waste...

When Milei became Argentina's President in Dec '23, I banged the drum to float the Peso. That didn't happen and here we are again. Peso is down 10% in recent weeks (lhs), FX reserves are tumbling and the discount on the parallel $/ARS rate is widening (rhs). Another self-inflicted crisis. Madness...

There's many signs US households are increasingly struggling, but consumer spending looks ok. How can this be? One explanation is that consumption is increasingly driven by upper income households who still have lots of "precautionary saving" from COVID... robinjbrooks.substack.com/p/the-incred...

Expectations of a dovish Fed had halted the rise in very long-term government bond yields in recent weeks. That catalyst is now out of the way and the Fed certainly did what it could to be dovish. Longer-term yields are resuming their rise. Epicenter of this is Europe: Germany, France and the UK...

Argentina's problem is that the Peso is at least 20% overvalued. It's still substantially above where it was after the Dec. '23 deval and - more important - its currency is way above key trading partners like Brazil. No use burning reserves fighting that... robinjbrooks.substack.com/p/how-overva...

China's transshipments to Russia via Central Asia have been rising sharply in recent months. This coincides with a slowdown in China's direct exports to Russia. The same flood of goods are going from China to Russia, just via more circuitous routes. This is the Beijing - Moscow axis. Beware Europe.

China's direct exports (black) to Russia are up massively and fully offset the drop in G7 exports (blue). But China also transships to Russia via Central Asia (pink). Once you factor that in, the rise in its exports to Russia totally swamps the G7 drop... robinjbrooks.substack.com/p/the-russia...

Member states' refusal to enforce sanctions have rendered packages 1-18 as almost useless. Please be tough and address this.

China's exports to Uzbekistan have doubled since Russia invaded Ukraine. China's transshipments via Central Asia are up massively this year, even as its direct exports to Russia are down. So more transshipment, less direct trade. Beijing remains Putin's biggest enabler by far...

The lesson from 2025 is that rate cuts don't actually translate into lower borrowing costs for governments. We've had lots central bank cuts all over the place (black line) in the past year, yet 30-year yields (red line) have continued to trend higher. Fed independence is more important than ever...

Excellent long-term debt explainer: Decades of declining interest rates are likely over US will no longer be able to roll old (higher interest rate) debt into new (lower rate) debt #EconSky

The rise in long-term government bond yields continues today. Expectations of a dovish Fed had been pulling down global yields in the run-up to this week. With that catalyst out of the way, yields are resuming their upward trend. Fiscal discipline has never been more important...

The Dollar this week is an object lesson in how hard it is to make the case for a secular USD decline. The Fed made a meaningful dovish shift, but that was priced in the days after Powell's dovish Jackson Hole speech, so here we are. The Dollar is essentially flat on the week...

Rate tailwind flips to headwind. #econsky

Up until COVID, US interest rates had been trending down for many decades. That flattered debt sustainability, because - even with increasingly wide deficits - we were constantly rolling high coupon debt into low coupon debt. That now goes into reverse... robinjbrooks.substack.com/p/fiscal-ris...

Some countries have aggressively lengthened the maturity profile of their debt, including Austria (AT), Germany (DE) and the Netherlands (NL). But most can't, as that'd push long-term yields way up. Another sign many countries are de facto running out of fiscal space. The US is a total outlier...

Brutal day for long-term government bond yields, especially in high-debt Europe. Yields for high debt countries, including France, had been pulled down in recent weeks by hopes for a very dovish Fed. The Fed did what it could, but it wasn't enough. Yields are now shooting up...

The Fed did its best to shift dovish yesterday and that bullet is now spent. But even its own forecasts the Fed anticipates a soft landing and that's what the data flow says too. This has big market implications: (i) the Dollar really has bottomed; and (ii) global long-term yields will keep rising.

The world is running out of safe havens. Germany and Japan are traditionally where bond investors go to hide when uncertainty rises. Not anymore. The rise in long-term yields means Germany and Japan aren't safe havens anymore. That explains why Swiss yields are getting crushed and gold is spiking...

Global markets had been looking to the Fed to bring down yields across the curve. The Fed yesterday told us it's done all it can. That means front-end yields (black) have fallen pretty much as far as they can go. Pressure on back-end yields - a global phenomenon - now resumes...

Markets had priced almost 3 full 25 bps cuts ahead of yesterday's Fed meeting. The press conference didn't give an unambiguous endorsement of 3 cuts through end-2025, so the Dollar bounced back sharply. Hard for the Dollar to fall given how much is priced... robinjbrooks.substack.com/p/the-first-...

Big fall in the Dollar on news the Fed is now signaling 3 cuts in 2025 (one more than at the June FOMC). We went into this meeting with 70 bps in cuts priced through end-2025. Fact that we're now getting 75 bps in cuts is therefore a marginal surprise, but the Dollar clearly doesn't think so...

As I suspected, the Fed went with option (ii), cutting the policy rate by 25 basis points and opening the door to 2 additional cuts this year. It did the latter in the strongest terms possible, by adding an additional cut in its Statement of Economic Projections...

Poland bites the bullet, but most of Europe is still trading with Russia So are other places, but since Russia is actively working to undermine European democracies and physically occupy parts you’d expect more seriousness when it comes to sanctions. Sweet Russian lucre washes those bloodstains..

Poland shows the way for ethical and effective governance inside the EU. Like in other EU countries, transshipments to Russia exploded after the invasion. Poland cracked down on this and now this racket is over. If transshipments continue from other EU countries, it's by choice and inaction...

Switzerland's "convenience yield" today fell to a record low. Right chart shows the 10-year yield differential for Swiss bonds vs other countries swapping those back into Swiss Francs using FX forwards. Switzerland is the ultimate safe haven country as Germany in the left chart loses that status...

The rise in very long-term government bond yields (red) is happening everywhere. For sure there's idiosyncratic trouble spots like Japan, France and the UK, but what's playing out is far bigger than that. Fiscal policy globally has been too loose for too long. That is now having consequences...

The world is running out of safe havens. Japan used to be a safe haven, but the sharp rise in long yields means it isn't any more. Germany is also seeing an erosion of its safe haven status. Switzerland is tiny, so you can't hide there. All this explains why gold prices are going crazy...

Fed has 3 options today: (i) cut 50 bps to get ahead of the labor market & Trump; (ii) cut 25 bps and open the door to 2 more cuts in 2025; (iii) cut 25 bps and stick with one more cut. I think they do (ii) to avoid a market sell-off and keep optionality... robinjbrooks.substack.com/p/the-fed-an...

The sharp fall in the Dollar today takes it below the previous low it made in early July. This kind of thing is significant, all the more so because it comes ahead of tomorrow's FOMC decision. Markets are positioning for a Fed that's under political pressure and a very dovish meeting...

Chair Powell's dovish speech at Jackson Hole on Aug. 22 has sent gold prices up massively (black). There's all kinds of explanations going around, but I think it's fair to say that markets see that speech as bending the knee to Trump. Gold is the ultimate safe haven as the Fed hangs in the balance.

They say it's better to be lucky than good. That's the story of France since Jay Powell's very dovish speech at Jackson Hole on August 22. That speech has sent US long-term yields a lot lower (blue), which has also pulled down French yields (red). Breathing space for France...

Euro in trade weighted terms (orange) is at all-time highs. That's a deflationary shock and stems from an ECB that's hawkish in the wrong way. It's hawkish on inflation, but dovish on debt. It should be the reverse: dovish on inflation and hawkish on debt. A bad equilibrium for the Euro zone...

Germany is losing its safe haven status. Unlike Switzerland, where yields are falling as investors seek safety, German long-term yields are up sharply. That's because of the softening up of the debt brake and ECB backstops for highly indebted sovereigns... robinjbrooks.substack.com/p/germany-lo...

excellent!

If and when the ECB’s anti-fragmentation TPI tool is used, it’ll be yet another signal to high-high Euro zone countries that debt reduction isn’t worth the bother. The ECB just has no business capping long-term yields. Great piece by Johanna Treeck in @politico.com. www.politico.eu/article/germ...

Markets price a lot more Fed easing since Chair Powell's dovish Jackson Hole speech on Aug 22. That's pulling down 30-year yield in the US and elsewhere, but not Germany and Japan. Debt dynamics in the Euro zone and Japan are on a different track from the rest of the world. And not a good one...

Breakeven inflation rates (blue) for the US haven't moved up at all, which is striking given all the political pressure on the Fed. The most benign explanation is that markets are focused on recession risk, which is pulling down real yields (red) and disinflationary...

This morning I gave an interview on Deutschlandfunk about the importance for the EU to bring the US on board on sanctioning Russia's shadow fleet. If that means agreeing to secondary tariffs on India & China, so be it. US sanctions are critical for the EU... www.deutschlandfunk.de/interview-mi...

Japan is much closer to a debt crisis than people realize. On one hand, it needs to keep rates low to avoid public finances from exploding. On the other, if it keeps rates low, the Yen goes into another devaluation spiral. Japan is backed into a corner... robinjbrooks.substack.com/p/japans-deb...

Monetary policy stopped being monetary policy a long time ago. Central banks buy huge amounts of debt in every bad shock and then sit on it permanently. That's monetary financing of broken fiscal policy. Everyone is deeply in the hole on this, but Japan and the high-debt Euro zone are the worst...

Where does it all end? The Fed in 2009 started doing QE (blue) and since then has bought huge amounts of Treasuries that are never sold. That keeps interest rates artificially low and enables increasingly reckless fiscal policy. We're truly on an explosive path, which starts and ends with the Fed...

Greek ship owners in shadowy businesses, is almost a pleonasm.

Argentina can't help itself. After every devaluation - like Dec. '23 - it repegs to USD. That just sows the seeds for the next devaluation and Milei also fell into this trap. The Peso has fallen sharply (lhs), but it's still at least 20% overvalued (rhs)... robinjbrooks.substack.com/p/how-overva...