It has been far more difficult to pick one Chart of the Week this week. There is so much going on right now, most of it revolving around the possible re-rising of the “dollar.” An unwelcome development, to be sure, but a potentially important one for the intermediate term direction of more than just EM currencies and markets. The global economy, as it has for more than a decade, hinges on offshore money.
My first thought for the most representative and outstanding chart was this one:
It fits like a glove the growing currency crisis (and it is a crisis now). Everything hit the accelerator that week (April 18), from EM’s to gold with now CNY and EUR participating in the rout (or, perhaps the last two leading it). As currencies have crashed, UST’s have bled almost constantly from Fed custody.
But I can’t overlook this week’s big surprise in the repo market. FRBNY reporting almost no fails last week really is stunning in a way, particularly given all these other movements (gold especially).
That one repo indication isn’t all alone by itself, however. It is actually joined by one currency that has for the past six weeks been beyond all this as if similarly, and suddenly, detached. You used to be able to count on JPY to be in thick of these things, if not at the direct center of them. Going back to last year, though, it’s been removing itself from many formerly durable correlations (such as to gold).
Maybe Japanese banks have gone far enough to have pulled out of all this mess, that’s what TIC suggests anyway at least in the direction they have been taking. As is usual in the short run, we don’t possess nearly enough information to reach reasonably solid conclusions. Just weird developments and strange conjecture. Nothing ever goes in a straight line.
I think that’s a fitting description for this week’s action.