China capital curbs reflect buyer’s remorse over market reforms

Last year the reformist head of China’s central bank convinced his Communist party bosses to give market forces a bigger say in setting the renminbi’s daily “reference rate” against the US dollar. In return, Zhou Xiaochuan assured his more conservative party colleagues that the redback would finally secure coveted recognition as an official reserve currency […]

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Capital Markets

Mnuchin expected to be Trump’s Treasury secretary

Donald Trump has chosen Steven Mnuchin as his Treasury secretary, US media outlets reported on Tuesday, positioning the former Goldman Sachs banker to be the latest Wall Street veteran to receive a top administration post. Mr Mnuchin chairs both Dune Capital Management and Dune Entertainment Partners and has been a longtime business associate of Mr […]

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Financial system more vulnerable after Trump victory, says BoE

The US election outcome has “reinforced existing vulnerabilities” in the financial system, the Bank of England has warned, adding that the outlook for financial stability in the UK remains challenging. The BoE said on Wednesday that vulnerabilities that were already considered “elevated” have worsened since its last report on financial stability in July, in the […]

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China stock market unfazed by falling renminbi

China’s renminbi slump has companies and individuals alike scrambling to move capital overseas, but it has not damped the enthusiasm of China’s equity investors. The Shanghai Composite, which tracks stocks on the mainland’s biggest exchange, has been gradually rising since May. That is the opposite of what happened in August 2015 after China’s surprise renminbi […]

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Hard-hit online lender CAN Capital makes executive changes

The biggest online lender to small businesses in the US has pulled down the shutters and put its top managers on a leave of absence, in the latest blow to an industry grappling with mounting fears over credit quality. Atlanta-based CAN Capital said on Tuesday that it had replaced a trio of senior executives, after […]

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Categorized | Currencies

Investors ready for the dollar parity party — second time around

Posted on November 23, 2016

It’s Thanksgiving, the euro is hovering around $1.06 and every punter in town seems to be dusting off the bunting for a parity party. Sound familiar? Yes, that was last year. But now, we’re in almost exactly the same position.

Last time around, the Fed spoiled the party plans by declining to deliver the gradual trickle of interest rate rises that the market had been expecting.

But as inboxes fill up with banks’ chin-stroking best guesses for the year ahead, all of them pitching bets against the euro, it does feel like this time is different.

The game changer, of course, is Donald Trump, who seems capable of achieving more than €80bn of bond purchases from the European Central Bank each month ever could.

Since his election this month, the dollar has rocketed as investors rip up their US growth, inflation and interest rate forecasts and replace them with much punchier estimates. The dollar probably has further to go against every major currency, but the euro is no exception.

A possible pointer comes from the bond market, where the gap in yields between US and German 10-year debt has now yawned out to its widest point since March 1989, before the Berlin Wall came down and before Jason Donovan fell from UK pop pickers’ affections.

The rationale for putting money to work in the US rather than in the eurozone benchmark has rarely been stronger. US Treasuries are the new high-yield market.

European politics also look unhelpful to the common currency, with the Italian referendum coming up next month and French elections in late April to early May. Société Générale thinks the run-up to the French vote could be the trigger for parity.

Deutsche Bank is going further, warning that its prediction for the euro to hit just $0.95 by the end of next year now seems “not aggressive enough”.

Do not rule out the chance of a surprisingly dovish tilt from the European Central Bank next month, and do not be shocked to see the euro overshoot, it advises. And number one in Goldman Sachs’s top trades for next year: sell euros (and sterling, of course).

One note of caution: If you can recall the last time a consensus top pick for the year ahead worked out, you have a long memory.