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  • Hello and welcome back to the note. And after an extremely quiet week,

  • last week, we are now already in the middle of an extremely busy one.

  • As far as we at the financial times are concerned, obviously the big news is that we are now part of the Nikkei group,

  • first change in ownership in over half a century.

  • Perhaps the biggest financial news of the day is that the IMF is going to include the Chinese currency in its Special Drawing Right,

  • so though that's not a move that has any big market consequence.

  • The really big deal in foreign exchange I would suggest, is the renewed great strength of the dollar.

  • You can see that, here in the dollar trade-weighted index, now almost through its high from earlier this year

  • back up through 100 plainly the results of what you might call the great divergence.

  • The belief that monetary policy here in the States is going to diverge ever more particularly from the Eurozone and from the Bank of Japan.

  • Now if you want a really dramatic demonstration of it, take a look at this next chart,

  • which shows you the spread of 2-year German bunds yields over the equivalent US Treasuries.

  • And you can see German bund yields getting ever lower into negative territory,

  • that is now showing the most emphatic negative spread in getting on for a decade certainly since the crisis.

  • There's a continuing belief that we will see monetary policy diverge

  • and we will have a number of very important events over the remainder of this week to test that hypothesis.

  • On Tuesday, we have the usual slew of new economic data that comes at the beginning of the month.

  • ISM surveys for the US, Europe et al.

  • Thursday, we will get the news from the European Central Bank.

  • Many expect an intensification of its policy of QE, of trying to push down yields in Europe.

  • And then on Friday, we have non-farm payroll data here in the US,

  • the last significant data that the Fed will receive before its meeting later this month in which everyone expects it to raise rates.

  • If we are all rights, we are going to see clear evidence that that divergence that the market is now calling for

  • is indeed going to happen by the end of this week.

  • We've had very calm markets for a few days, as everybody doesn't want to take any big positions ahead of this series of big events.

  • Obviously if anything happens to interrupt, that's consensus to suggest that we're not going to diverge quite as much as people think.

  • Then we could have a very much more exciting week this week.

Hello and welcome back to the note. And after an extremely quiet week,

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    Kristi Yang posted on 2015/12/03
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