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Insights and Analysis
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21 ноября, 17:00

Saudi Arabia: Turbulence on the Horizon?

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There is considerable change underway in Saudi Arabia, from how the country is governed and managed to an even more activist role in the politics of the volatile Middle East. Options markets, however, appear to be almost entirely unconcerned about recent developments in the country, the world’s largest exporter of crude oil and a key U.S. ally in the Middle East. 

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13 ноября, 15:00

Wheat: Will High Inventory Further Dent Prices?

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Chicago Board of Trade soft red winter wheat prices began a long-term bear market over five years ago in July 2012.  Since then, prices have fallen by more than 50%.  The good news for wheat growers is that while prices are depressed by 2007-2017 standards, at $4.30 per bushel, they remain higher than levels between 1997 and 2006 when prices fell below $3.00 per bushel (Figure 1).  What concerns many wheat growers, however, is the level of inventory.  Ending-stocks-to-use ratios have rarely been so high (Figure 2).  Will the level of inventories further pressure prices and send wheat below $4.00, or even $3.00 per bushel?

09 ноября, 18:07

UK: What to Expect From a Prime Minister Corbyn

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Since losing its parliamentary majority in June 2017, British Prime Minister Theresa May’s Conservative Party has been hanging by a thread, propped up by coalition partner, the Democratic Unionist Party (DUP) of Northern Ireland. Even under the best of circumstances, keeping the coalition’s grip on power was a difficult task. For starters, the government must negotiate Brexit, which was already complicated without the DUP advocating special arrangements for Ireland. Making matters worse, European Union (EU) leaders told Britain “to go back and try harder,” saying that Brexit negotiations haven’t advanced far enough on issues such as the status of EU citizens living in Britain and the payment Britain will make to Brussels when it leaves the EU and Northern Ireland to advance the discussions to Britain’s future commercial relationship with Europe or a post-Brexit transition period. While there is some hope that Britain will soon agree to a £60 billion divorce fee, the negotiations haven’t gotten past square one. Adding to May’s woes is tabloid-worthy discord within her cabinet. Andrea Leadsom, the Leader of the House of Commons, denounced Michael Fallon, the Defense Secretary, for making “derogatory comments of a sexual nature” towards her, prompting his resignation. This dispute triggered an eruption of unrelated allegations of inappropriate conduct within parliament.  While these controversies touch all major parties, the government is taking the brunt of it.   Given the fragility of the current government, markets should probably be thinking carefully about the next Prime Minister and the potential impact on the U.K. economy and currency.  In fact, even if things in Westminster were going swimmingly (which they aren’t), markets should probably be looking to the next elections anyway. As is the case in democracies, U.K. voters have a way of turning against incumbents.  In the past century, there have been 26 general elections.  In those 26 elections, the incumbent party or coalition of parties expanded their popular vote margin in only five of them and lost support in the other 21, including each of the past eight elections (Figure 1).  

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08 ноября, 00:00

Ag Hedging Costs Could Spike if La Niña Strikes

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Off The Charts! examines the pertinent economic issues of the day, providing a deeper dive into complex topics and framing the issues in a way that can lead to a better understanding of the financial and commodities markets.

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04 ноября, 20:45

Understanding Treasury Futures

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Gain an in-depth overview of the fundamentals of trading U.S. Treasury futures, with the newest version of our most popular whitepaper. Readers will receive:  A primer on the operation of cash Treasury securities Details on the features of the U.S. Treasury futures contracts A grounding in risk management applications with Treasury futures

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31 октября, 21:37

Evolving Economics of Bitcoin, Gold, Currencies

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An inherent tension exists between the two major purposes of money.  Currencies that are perceived as great stores of value, such as gold and bitcoin, make for poor mediums of exchange.  By contrast, currencies that are effective mediums of exchange, such as fiat currencies used the world over, can make for dubious stores of value. Where a currency falls on the store of value versus medium of exchange spectrum influences its usefulness as a unit of account and a standard of deferred payment.

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26 октября, 16:00

Oil Markets in Supply-Demand Tug of War

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U.S. West Texas Intermediate (WTI) crude oil has been stuck in a wide yet fairly well-defined trading range of $42 - $55 per barrel since September 2016.  In the near-term, that range might shift modestly upward to $48 - $62, and drift lower over the long term by $10 to $15 per barrel. High inventories and increased U.S. oil production have tended to push the price to the lower end of the range, while production cuts by the Organization of Petroleum Exporting Countries (OPEC), potential short-term supply disruptions, and incrementally stronger global economic growth have all worked to push the price into the upper portion of the range, and possibly expand the range toward $60 per barrel.   Also, note that despite the lower volatility associated with range-bound trading, open interest in NYMEX WTI crude oil futures has soared to record highs as uncertainty in the oil market remains elevated even if volatility is low on a historical basis. 

23 октября, 22:17

Abenomics: A Work in Progress After Five Years

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Japanese voters returned Prime Minister Shinzō Abe’s Liberal Democratic Party to power for a third term with over 60% of the seats in the lower house of parliament on Sunday October 22.  The vote was an endorsement of Abe’s “three arrows” approach to reviving Japan’s economy though monetary policy, fiscal stimulus and structural reform.  Over the past five years Abe’s policies have borne some fruit.  Nominal GDP has had its first sustained period of growth since the mid-1990s (Figure 1) - its best performance since Japan’s financial crisis began in 1990; and unemployment rates have fallen to levels not seen since 1994 (Figure 2).  Abe’s third mandate appears to be aimed more at constitutional reforms that will enable Japan, the world’s third largest economy, to rebuild its military and play a more active role in regional security matters, including standing up to China and North Korea.  The nation appears set for economic-policy continuity, including continuing quantitative easing by the Bank of Japan (BoJ). 

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17 октября, 20:51

Oil: Short-Term Versus Long-Term Price Scenarios

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U.S. shale technology is an evolving science that will continue to boost output even as fuel efficiency achieved through electric vehicles depletes demand.

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11 октября, 18:00

Equities: Comparing Russell 2000 Versus S&P 500®

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Since the Russell 2000 began tracking the performance of small-cap stocks in 1979, the index has broadly matched, if not slightly exceeded, the performance of the more venerable S&P 500® index of large cap stocks (Figure 1).  While the two indexes’ overall performance has been similar and their correlation generally high (0.8 on average; ranging from 0.6 to 0.96 on a one-year rolling basis), they have diverged significantly at times.  (Figure 2). 

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09 октября, 14:00

Europe: How Markets View Unity vs. Disintegration

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Opposing forces championing integration versus disintegration are assailing Europe.  In the past two years both sides have scored important victories.  Britain’s Brexit, Spain’s Catalonian independence referendum and the entry of the nationalist Alternative fur Deutschland (AfD) party to the German parliament, or Bundestag, were victories for proponents of lesser European unity.  The electoral defeat of far-right forces in the Netherlands and the victory of Emmanuel Macron in France were celebrated by those favoring the guiding principle of an “ever closer union.”  Whatever one thinks of Brexit, the prospects for deeper European integration and the legitimacy of the various national independence movements, the currency markets’ view is unambiguous: they strongly favor deeper political integration: When exit polls mistakenly called the Brexit referendum for the ‘Remain’ voters, the British pound (GBP) rallied from 1.45 to 1.50 versus the U.S. dollar (USD) before crashing, first to 1.32 and later to as low as 1.18 versus the USD when the “Leave” victory became apparent.  The euro fell 3% versus the USD on the day of the Brexit referendum and fell nearly 10% versus the USD within six months. Euro rallied 2% versus the USD in the week after Dutch voters dashed the hopes of the Geert Wilder’s Eurosceptic Party of Freedom. Euro soared more than 10% to a two-and-a-half-year high in the weeks after Macron won the French presidential election on a platform advocating domestic economic reform and deeper European integration. September’s German election results halted this advance after it became apparent that not only did AfD enter the Bundestag, as expected, but that Angela Merkel underperformed the polls by about 5-6% and would have to create an unwieldy coalition with the enthusiastically pro-European Greens and the Free Democrats, who oppose deeper economic integration. Catalonia’s independence referendum led to a 1% one-day decline in the euro, further offsetting gains from the Macron victory. Ninety percent of Catalans voted to leave Spain in the referendum on Oct 1 that the Spanish state considers illegal and attempted to repress with force, leading to nearly 900 injuries. In each case, a victory for the forces of integration sent European currencies higher, while a victory for the forces advocating less unity, whether within or among nations, led to weaker currencies.   In addition to the political concerns there are, of course, many other factors that determine the direction of the euro-dollar (EURUSD) and pound-dollar (GBPUSD) exchange rates, including the relative economic strength of the eurozone, the U.K. and the U.S. and the relative direction of monetary policy. Solidifying recoveries in the eurozone and the U.K. combined with the seeming inability of the U.S. Congress to pass anticipated economic reforms boosted European currencies and weighed on the dollar for much of 2017.

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02 октября, 14:00

Options Markets Complacent Ahead of La Niña

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After a head fake last year, the La Niña weather phenomenon may be coming back for real this time (Figure 1).  Cooler-than-normal water is pooling along the Equator on the Americas side of the Pacific Ocean (Figure 2).  La Niña is associated with cooler, wetter conditions along the U.S.-Canadian border; warmer, drier conditions in much of the southern United States, and impacts weather patterns worldwide.  Past La Niñas have roiled agricultural markets, sending prices on wild rides, often lower amid exceptionally high levels of volatility.