The MUFG Global Markets Podcast

Over the past four weeks, the FOMC continues to deliver what appears to be a forceful, seminal shift in their monetary policy framework. The Committee has strengthened its maximum employment mandate, elevating its stature to be a vibrant, durable, broad-based, and inclusive one. 12 years of erroneous predictions has inclined the pragmatic Chair Powell to dispose of many of the features of the Phillips curve thinking within the Fed’s inflation models and to relegate it’s importance upon the indicator dashboard. This shifting of emphasis within the new framework likely may lead the U3 unemployment rate to decline all the way to 2.604% by year-end 2024 (a 100-year low!) – according to our models forecasts. Still, there remain many unanswered questions, but a deeper understanding of the new framework is a must for any investor.
In this episode, MUFG U.S. Rates Strategist, John Herrmann, continues to try to enhance listeners’ understanding of the Fed's new framework.

A mix of cross-currents are threatening to turn the tide for the FX markets. COVID-19 is back in focus in the UK, with the growing likelihood of new lockdowns sending the pound into underperformance.
The threat of negative interest rates is also looming, and Derek Halpenny, Head of Global Markets Research for EMEA, gives his forecast for when these could be potentially implemented. Stateside, the passing of Justice Ruth Bader Ginsburg has opened a seat on the Supreme Court, giving way to an escalation in partisan politics. What does this mean for the dollar? Listen below for more.

The FOMC recently concluded its first meeting under the new monetary policy framework announced less than a month ago. As expected, the meeting was a seminal one! Chair Powell and the rest of the Committee sent a powerful message that they will target inflation above 2% for "some time" to achieve its new "average" goal. That's significant, especially when maximum employment means more than just a low U3 unemployment rate. How is an investor to navigate these uncharted waters?
In this episode MUFG US Rates Strategist, John Herrmann, breaks down the September FOMC meeting in light of the Fed's new monetary policy framework and tells listeners what it means for his core strategic investment stance for a 2s-30s Treasury yield curve steepener.

It was only a little over a year ago that Emperor Naruhito acceded to the Chrysanthemum Throne, beginning the Reiwa era. This week marks yet another new period for Japan, following the election of Yoshihide Suga as leader of the Liberal Democratic Party this past weekend. Japan’s next Prime Minister will be announced on September 16 and a new Cabinet launched. USDJPY has traded in a narrow range recently. With the Obon summer holidays over, Japanese and overseas investor flows have been oddly mixed and balanced ahead of the end of the quarter, and market pricing has remained in a narrow range.
In this episode, Takahiro Sekido, Chief Japan Strategist of Global Markets Research, MUFG Bank Tokyo discusses Japan’s new administration, cross-border flows, and his views on USDJPY and JPY rates and JPY basis. 

The pound took a big hit last week as no-deal Brexit fears built, bringing a period of GBP outperformance to an abrupt end. As UK-EU negotiation tensions continue and with the UK government threatening to override the Brexit withdrawal deal, Lee Hardman, currency analyst, gives his take on what is in store for sterling.
Over the pond in the U.S., the FOMC convenes this week; looser monetary policy is on the cards, but listen to hear how various scenarios may play out in the markets.  

August total non-farm payrolls came in at +1,371K mom, near to the consensus estimate of +1,350K mom but shy of our models forecast of +1,576K mom. Details of the establishment survey suggest that systematic sampling features may have biased down the reported payroll gain by 300K to 400K. It is likely that the employment gain, as calculated by the household survey, of +3,756K mom is a more reliable indicator of the direction and strength of the employment recovery. Accordingly, in our models calculations, the U3 unemployment rate is tracking a 7.25% outcome by year-end 2020, with risk towards 6.95%. By year-end 2021, the U3 rate likely may track 4.92%, and by year-end 2022, the U3 rate likely is tracking 3.74%. Simply remarkable!
In this episode MUFG US Rates Strategist, John Herrmann, reviews the August employment report, including his forecasts for non-farm payrolls and the unemployment rate versus the actual results. He also explores the implications of the number on his outlook for the economy, the yield curve, and the Fed.

Even though Prime Minister Shinzo Abe’s resignation in August came as a surprise, the impact on JPY market was limited. Accordingly, remain cautious of JPY rates rising, USDJPY falling, and JPY basis taking on a widening bias. We expect to revisit these views as the next administration’s lineup and its policy stance unfold in mid-September. Ahead of that, the Japanese Ministry of Finance Balance of Payments data for August suggest the new administration’s first order of business may be fiscal spending.In this episode, Takahiro Sekido, Chief Japan Strategist of Global Markets Research, MUFG Bank Tokyo discusses Japan’s monetary base, JPY fund supply and demand, the Tokyo repo market, cross-border flows, and his views on USDJPY and JPY rate and JPY basis. 

September will be key for central banks globally responding to the looser monetary policy outlined by the Federal Reserve.
First up is the ECB, and Derek Halpenny, Head of Research for Global Markets EMEA, explains why he is predicting a forceful message from Christine Lagarde following Thursday’s meeting and the potential impact on the FX markets. Also in this podcast, Derek explains why trade negotiations between the UK and EU are about to become a big focus for investors.

Despite another weak ADP employment report, John Herrmann is expecting another better than expected gain in payrolls, not to mention a larger than expected fall in the unemployment rate. Delays to public school openings represent down-side risk to our models forecast. Employment isn't the only thing that John is optimistic about. He's expecting growth to rebound by a big 32% in Q3 and many of his forecasts still remain more constructive than the consensus, the Fed, and other official forecasts. That scenario coupled with the Fed's new policy approach and fresh fiscal stimulus after the election could prove to be a powerful potion for the real economy?!
In this episode, MUFG US Rates Strategist, John Herrmann, previews the August employment report, including his forecasts for non-farm payrolls and the unemployment rate. He also explores the implications of those forecasts on his investment thesis, the 2s-30s yield curve steepener.

USDJPY dropped following the announcement of Prime Minister Abe’s resignation last Friday. Although the decline in USDJPY was limited compared to the scale of Nikkei Average drop, since higher US yields catalyzed Japanese investor buying of foreign bonds, thus supporting USDJPY downside. Political risk will only increase through mid-September. Not only USDJPY and JPY rates, but also the Nikkei Average will be prone to these risks, and Japanese investment flows are likely to stay active.In this episode, Takahiro Sekido, Chief Japan Strategist of Global Markets Research, MUFG Bank Tokyo discusses the impact of Abe’s resignation on markets and cross-border flows as well as updates of his view on the Yen, Yen rates, and Dollar/Yen cross-currency basis.

The FOMC’s economic projection for 2020 was especially pessimistic at their June 9-10 meeting, leading some Staff to examine the suitability of super accommodative policies, such as negative interest rates or yield curve control. Since that meeting, the outcomes of U.S. economic data has been strong, easily beating the consensus estimate.
Our models currently forecast growth of +29.00% over the third quarter, with a carry on growth of +2.00% in the fourth quarter, or possibly stronger. If our forecast proves accurate, then real GDP growth is significantly outpacing either the consensus estimate or the FOMC’s core projection. At what point will Wall Street and the FOMC catch up to our model’s forecast for the economy? Perhaps at the Jackson Hole Symposium? And, in this dynamic environment, is it likely that Chair Powell proves not to be as uber-dovish as forward markets and many strategists suggest?
In this episode, MUFG Rates Strategist, John Herrmann, previews this week’s virtual Jackson Hole Symposium and discusses what our model is currently forecasting. He also gives listeners an update on his core strategic investment stance of a 2s-30s yield curve steepener.

The trend of dollar weakness and euro gains could be at an end, according to Derek Halpenny, Head of Research for Global Markets EMEA.
This week, Derek looks at the prospects for EUR correction as the markets begin to show concern about evidence of a worsening COVID-19 situation in Europe and also gives his outlook for potential dollar recovery. Are key U.S. events this week, the Republican National Convention and Jackson Hole gathering, going to move the markets?

We tee up the likely tone of the Federal Reserve’s virtual Jackson Hole conference next week, by reviewing our forecasts for the key cyclical, macro-economic indicators of the U.S. economy. Then, we review our long-held forecasts over the structural imbalances of the economy, arguing that the persistence of those imbalances require even more forceful policy stimulus from fiscal and monetary authorities. If the political pendulum swings on November 3rd to the Democratic Party, in the Presidency and the Senate, then we anticipate another +2.650 trillion fiscal stimulus by February 2021. U.S. stock markets might advance to never before seen levels next year upon the resilience of the economy, the massive stimulus, and a vaccine(s) at some point over the coming 18 months.
In this episode, MUFG Rates Strategist, John Herrmann, reviews forecasts over the coming 12 months and beyond and tells listeners what these structural imbalances might ultimately require. He also offers more insights on the upcoming U.S. election and gives listeners an update on his core strategic investment stance of a 2s-30s yield curve steepener.

The New Zealand Dollar is continuing to underperform following a dovish update from the RBNZ; with negative rates still on the cards for New Zealand next year, Lee Hardman, Currency Analyst, gives us his outlook.
Lee also takes a look at the Turkish Lira, which is seeing continued downward pressure, with USD/TRY trading close to record highs. Will Turkey’s central bank be decisive enough this week to help stabilise the Lira? Listen now for more. 

Payroll gains in July were solid at +1.763mm, higher than consensus estimate (+1.500 million) but close to our forecast of +1.650mm. Similarly, GDP was better than consensus expectations of -34.8% but close to our -32.5% forecast. Moreover, we expect another better than consensus GDP print in the 3rd quarter and for the year-end U3 unemployment rate to be near 8.39%. If that's the case, why are we so worried about the outlook for employment and growth going forward?
In this episode, MUFG Rates Strategist, John Herrmann, reviews July employment and Q2 GDP reports and tells listeners what these mean for the labor market and growth going forward. He also offers his take on the upcoming U.S. election and gives listeners an update on his core strategic investment stance of a 2s-30s yield curve steepener.

Please note this podcast was recorded prior to Joe Biden announcing Kamala Harris as his VP.
The 2020 election is less than 90 days away, and voting will begin in some states as early as next month. With the continued impact of the coronavirus, former VP Biden has maintained a lead over President Trump, but as the general election campaigning heats up, a number of upcoming events could impact the dynamic.
In this episode, Hana Rudolph, of MUFG’s Washington DC Representative Office, examines current dynamics of the 2020 election outlook: how Biden’s VP pick, the upcoming party conventions, and presidential debates could impact the race, and what investors should pay attention to in the months ahead. 

USDJPY has recovered to the 106 level so far in August. However, DXY shows that US dollar weakening trends remain intact. Globally, equity prices are firm and market sentiment is unlikely to drive JPY strengthening, but USDJPY could still fall because of seasonal cash repatriation factors. Japanese investors’, as well as Japanese companies’, flows for JGBs and foreign govies tend to be weak ahead of the Obon summer holidays.
In this episode, Takahiro Sekido, Chief Japan Strategist of Global Markets Research, MUFG Bank Tokyo discusses cross border flows, tight JPY swap and basis swap spreads, and updates on his view of the Yen, JPY rates, and JPY cross-currency basis.

Last week’s Bank of England policy meeting was positive for the pound, decreasing downside risks as confirmation was given that negative interest rates won’t be introduced for now. While the BoE continued to display a relatively optimistic outlook for the UK economy, Lee Hardman, Currency Analyst at MUFG considers whether this could be put at risk as the UK economy looks set to struggle in the coming months.
As announcements about job cuts linked to COVID-19 continue to grow, along with the heightened risk of a disruptive Brexit outcome, Lee expects further policy easing will be needed in the coming months to ensure stability. Elsewhere, strains are building in emerging markets but will they help to support the US dollar more broadly? Click below to listen now.

Major Japanese companies began announcing Q2 earnings results last week. Earnings of major companies reflect the uncertainties of the COVID-19 pandemic. Japanese companies need to secure USD funding with JPY basis swaps to maintain their global business portfolios amidst uncertain business conditions. Despite all this chaos global stock and credit markets remain calm as central banks in key economies continue to buy government bonds and credit assets and supply USD funds. Will this continue?
In this episode, Takahiro Sekido, Chief Japan Strategist of Global Markets Research, MUFG Bank Tokyo discusses the increase in fiscal receipts from MoF issuance in the context of BoJ asset purchase and USD fund-supply operation announcements. He also updates his view on the Yen, JPY rates and JPY cross-currency basis.
 

Uncertainty looms for both USD and GBP as both countries reckon with unpredictable forces. Relentless selling saw the dollar have a terrible month in July, and now concerns that President Trump may call into question the legitimacy of votes in the U.S. election and risks of the Fed failing to pass another fiscal stimulus package are further undermining the currency.
 
Meanwhile the pound has seen surprising strength over the past month, but with a Bank of England meeting on Thursday, local lockdowns and COVID-19 second wave fears, can this trend continue? Lee Hardman, currency analyst, gives his forecast. 

The FOMC concluded its June policy meeting on the eve of the advance reading of Q2 US GDP. Although the FOMC did not make any new policy announcements, Chair Powell sent a powerful message that members of the committee were prepared to provide "highly accommodative monetary policy and the use of our tools for an extended period." Still the question remains: what are those tools, when will they be deployed, and for how long?!
 
In this episode MUFG Rates Strategist, John Herrmann, lays out his growth forecast for the US economy ahead of the release of the advance reading of Q2 GDP. He also breaks down the July FOMC meeting, tells listeners what to expect from the Fed's review of its monetary policy framework, and previews potential future policy announcements.

Congress is poised for whirlwind negotiations on the next round of fiscal stimulus over the coming weeks, after Republican Senators unveiled their priorities in the Heals Act on Monday. However, Republicans and Democrats remain far apart on key issues, including unemployment benefits and business liability protections, and the outcome remains highly uncertain.
 
In this episode, Jesse Wheeler, of MUFG's Washington DC Representative Office, will go over where negotiations currently stand, review key issues and obstacles, and explore the timeline and potential outcome of what is sure to be a contentious debate on Capitol Hill.
 
 
 

USDJPY has been on a downward trend of late. Not only has USD been weakening, but there is also the seasonal factor of Japanese companies repatriating overseas profits. The lower bound for USDJPY was firm until Japan’s long holiday weekend, likely supported by JPY selling from Japanese investors as overseas investing is deeply entrenched. All that said, the COVID-19 pandemic may already be upending traditional Japanese corporate FDI and investor behavior.
 
In this episode, Takahiro Sekido, Chief Japan Strategist of Global Markets Research, MUFG Bank Tokyo discusses Japanese FDI flow and profitability as well as implications for JPY basis. He also tells listeners what to watch for and updates his view on the Yen, JPY rates, and JPY cross-currency basis.

In the U.S., an uptick of COVID-19 cases, flatlining high frequency data, election risk premium and social unrest are putting pressure on USD, as its continued weakness continues to cause ripples in the global markets.
 
In this podcast, Derek Halpenny, Head of Research for Global Markets EMEA, looks at the outlook for the currency and gives his predictions for the important upcoming July FOMC meeting this week.