Moneta’s Post

Check out Moneta’s first instalment of its “Perspectives by Moneta” newsletter, a take on current events and trends in the capital markets. Recent market events suggest we are at a pivotal moment with several key geopolitical and financial events intersecting. This situation presents both opportunities and risks for investors. Read on for more insight and subscribe to keep informed.

The Copperfield Illusion: Temporary Stability in a Volatile World With the Fed cutting rates, investors are faced with new opportunities—and risks. As they borrow in low-interest currencies and pour capital into high-yield options like Türkiye’s lira, temporary stability emerges. But the question lingers: Can economies built on speculative inflows really withstand the shock of sudden capital flight, or are we staring down the next inflation crisis? The Fed rate cut, which had been anticipated since mid-2024, finally took effect 3 weeks ago—joining the European Central Bank, the U.K., and other prominent institutions. Arguably, the main intention of these cuts was to ensure a soft landing for the economy before the tarmac ran out, and to prevent further economic distress. Though the full impact of these rate cuts will come into view after they have marinated for a while, the effect of these cuts has rippled far beyond the borders of America—to Brazil, Chile, South Africa, and more. But the critical question remains: Will investors stay the course and chase higher yields, or will growing instability force them to reconsider? Understanding the host economy’s nuances with deep familiarity, investors still choose to borrow from comparatively low-interest currencies and invest in high-interest-rate currencies like the Turkish lira and the South African rand. Those looking to gain the full benefit from this carry trade invest in products such as bonds or treasury bills. This causes, and has caused, a gradual shift in currency strength. This inflow of capital leads to stability—which in turn leads to reduced inflation levels. As the graph shows, Türkiye’s inflation rate dipped to 49.38% with capital inflows in July 2024—a short-lived relief, in theory. This is where the Copperfield illusion comes into play—this balance in inflation, though not artificial, is truly fragile, vulnerable to sudden shifts in investor sentiment, economic activity, or global and natural disasters. Which, if we are being honest with ourselves, isn’t a rare occurrence in recent times. This leaves economies such as Türkiye’s at the risk of capital flight. The graph highlights December 2021's capital exit of -$13.7 billion and a 36.08% inflation surge. Though pandemic effects were at play, the role of capital flight is clear. Investors withdraw their funds, and when one domino falls, the rest quickly follow, leading to a mass exodus of capital. The inflation rate, which was already only bearable, turns into an eyesore. Over-reliance on these carry trades could backfire if not managed carefully. If we look closer, it becomes clear: relying on carry trades is inherently fragile. These flows may offer a temporary reprieve, but eventually, the underlying risks come to the surface. Speculative inflows such as these can easily reverse—and when they do, the damage is often profound. How long can these economies rely on borrowed confidence? By Daanyaal Sharif.

Deutsche Wealth expects US growth to moderate and in the following quarter and then re-accelerate in 2025 in #OutlookQ4 Disclaimer: Views are my own Here are the key takeaways: ➡️ The US, Eurozone, Japan and China are expected to grow at 1.7%, 1%, 1.2% and 4.4% in 2025 and 2.4%, 0.7% and 4.8% for US, Eurozone and China in 2024 ➡️ Inflation rate in the US, Eurozone, Japan and China is expected to moderate to average at 2.3%, 2.3%, 2% and 1.7% respectively in 2025 ➡️ A shallow cutting cycle of 150 bps by Q3'25, risk from deficit spending and debt ceiling debate to keep yields high, US 10Y at 4.05% ➡️ The S&P 500 and STOXX Europe 600 are expected to reach 5,800 and 540 by the end of Q3'25 driven by earnings ➡️ Gold to benefit from expected rising fiscal deficits, money creation, central bank diversifying their reserves DB also expects a demand-supply gap in Copper? Are you bullish on any commodities? Let me know in the comments 👇 Look out for a separate post on their asset class forecasts Thanks for reading. Follow me, Divit Sinha and ring the '🔔' for more

Macroscope: Long the yen against the euro https://lnkd.in/d5SxDjD8 Iain Cunningham, CFA, Head of Multi-Asset Growth at Ninety One Since 2021, major economic cycles have been out of sync, presenting macro investors with opportunities to capitalise on policy divergence. In August 2021, for instance, it became clear to us that US and Chinese policy was set to move in different directions. Chinese authorities had tightened policy notably in early 2021, while the Fed maintained exceptionally loose policy despite a booming economy. We proposed that tight policy in China would weaken the economy and force an easier stance from the People’s Bank of China in 2022, while...

Why the US Dollar is so powerful and why th de - dollarization is difficult and disruptive for the 🌍 economy? The gradual reduction of reliance on the US dollar in international trade and finance. While this movement may seem appealing on the surface, it carries significant risks that could destabilize the global economy . Let's investigate into why de-dollarization could be more perilous than beneficial 👉. Fragile Global Financial System: The dominance of the US dollar in international transactions has provided stability to the global financial system for decades. De-dollarization threatens to disrupt this stability by introducing uncertainty and volatility into markets. As countries seek alternatives to the dollar, the risk of fragmentation and inefficiency in the global financial system increases, potentially leading to currency wars and economic turmoil. 👉. Market Turbulence: De-dollarization efforts often involve diversifying currency reserves away from the dollar into other currencies or assets such as gold. This process can trigger market turbulence, especially in emerging economies with large dollar-denominated debt. Sudden shifts in currency reserves could lead to capital flight, currency devaluation, and financial instability, creating a ripple effect across economies worldwide. 👉. Geopolitical Tensions: The US dollar's status as the world's primary reserve currency is not just a financial matter but also a geopolitical one. De-dollarization initiatives may exacerbate geopolitical tensions as countries(🇷🇺/🇨🇳 )challenge the dominance of the United States in the global economy This could lead to increased rivalries, trade disputes, and even conflicts as nations jockey for influence in a multipolar world. 👉. Impact on Trade and Investment: A shift away from the US dollar could have profound implications for international trade and investment flows. Businesses and investors may face higher transaction costs, increased currency risk, and reduced liquidity in markets. This could dampen economic growth and hinder cross-border commerce, ultimately hurting consumers and businesses around the world

Many of the major central banks (excluding Japan) are beginning or set to begin interest rate-cutting cycles this year. Here are four fixed income themes we believe could present investors with opportunities during the remainder of 2024. Key takeaways: - In anticipation of future rate cuts, we favour steepeners in the US and Germany, while monetary policy normalisation in Japan over the coming years favours a flattening yield curve expression. - Following a high degree of correlation in the performance of developed bond markets, diverging economic outlooks will likely open up relative value opportunities across sovereign bond markets. - Caution is warranted in corporate bonds – especially high yield – given rich valuations. As economic performance and monetary policy diverge, and the US dollar starts to face headwinds, active currency management is set to play an increased role in fixed income portfolios. By Julian Le Beron, CIO Core Fixed Income and Ranjiv Mann, Senior Portfolio Manager, Core Fixed Income at Allianz Global Investors #NavigatingRates #FixedIncome

Chapter 5: 2026: Decline of the U.S. Dollar and Strategic Global Responses Part I Analysis of the U.S. Dollar's Decline Overview of the Decline In 2026, the U.S. dollar experiences a pronounced downturn, marking a significant pivot in global financial dynamics. This weakening is attributed to a combination of burgeoning fiscal deficits, political instabilities, and a shift towards other currencies in international trade. The dollar's role as the predominant global reserve currency faces unprecedented challenges, influencing economic strategies worldwide. Contributing Factors Several key factors contribute to the decline of the U.S. dollar. Increasing economic resilience and policy autonomy in emerging markets lessen the dependency on the dollar. Countries like China and India enhance their financial structures, promoting trade in their local currencies. Furthermore, the introduction of digital currencies by central banks introduces new alternatives to the dollar, disrupting traditional banking and financial systems. Implications for Global Trade The diminishment of the dollar's dominance impacts global trade mechanisms profoundly. Countries increasingly negotiate bilateral trade agreements in alternative currencies, reducing the transaction costs and exchange rate volatilities associated with the dollar. This shift encourages a more multipolar currency system, potentially leading to more stable global economic environments. Strategic Adjustments by Global Economies In response to the dollar's decline, global economies are compelled to re-evaluate and adjust their financial strategies. Diversification of reserve currencies, enhanced regional cooperations, and strengthened economic alliances emerge as pivotal strategies. Economies are also incentivised to bolster their financial and monetary systems to withstand currency fluctuations and maintain economic stability. Future Outlook The decline of the U.S. dollar heralds a new era in global economics, characterised by a more distributed and balanced financial power structure. This transition supports the development of a multipolar world economy, where no single nation's currency dominates, fostering a fairer and more equitable global economic landscape. This narrative encapsulates the accelerating decline of the U.S. dollar in 2026, detailing its causes, impacts, and strategic responses by global economies. It illustrates a comprehensive shift towards a more balanced and resilient international financial system.

Are EM Carry Trades Still Attractive to Investors? Several emerging market currencies strengthened on the back of carry trade strategies in 2023 and early 2024 (carry trades involve investors borrowing in lower interest rate currencies and investing in higher yielding currencies). However, the uptick in market volatility in recent months, alongside declining interest rate differentials disrupted currency gains and has cast doubt on the profitability of such trades. Indeed, several “high carry” currencies, such as the Mexican peso, Colombian peso, Brazilian real have come under pressure in the recent months due to the combination of both domestic and external shocks. From an investor standpoint, the relative attractiveness of an investment is often measured in risk-adjusted terms. For carry trades, the primary risk is large fluctuations in the exchange rate, and such trades tend to flourish when broader market volatility is low. As shown in the chart, emerging market carry trades appear to have become less attractive when adjusting yield differentials by implied volatility in currency options. By comparison, in 2023, the risk-adjusted carry was near historical peaks for several currencies in Latin America and Eastern Europe. Going forward, diverging monetary policy stances could both revive interest in carry trades and lay the foundation for their undoing. For example, front loaded policy easing in the US could drive inflows to emerging markets in the near term, only to leave them exposed if terminal or neutral interest rates end up higher than investors expect. Similarly, changing policy preferences or delays in rate hikes by the Bank of Japan could again renew the appeal of carry trades in the near term. More broadly, in a world of elevated economic uncertainty and geopolitical fragmentation, emerging market currencies may be more vulnerable to rapid shifts in global investor sentiment and financial flows. Nassira A.; Patrick Schneider, CFA; Yingyuan Chen

Lifelong Bear Turns Bullish Gold for These 5 Reasons - As global economies continue to grapple with challenges that threaten both markets and currencies, many investors are reflecting on historical parallels. - Today, concerns about inflation, recession, and government policies are echoing the turbulent economic eras of the 1930s and 1970s. For investors aged 50+, safeguarding wealth has never been more critical, especially when considering the future of the U.S. dollar and the rising importance of tangible assets like gold. - In a recent interview, Daniela Cambone of ITM Trading sat down with Joel Lippman from Altimetry to discuss these parallels, the potential impact of today’s economic policies, and why gold may finally outperform the stock market. With a financially conservative audience in mind, let’s break down how these insights can help protect your retirement in uncertain times. - Joel Lippman identified five key policies emerging today that eerily reflect those of the 1930s and 1970s: Raising personal income taxes Raising corporate taxes Raising capital gains taxes Taxing unrealized gains Price controls - These actions, combined with price controls, worsened the economic downturns in those decades. According to Lippman, today’s proposed policies could have the same devastating impact on markets and the economy. - Historically, gold has always done well during periods of economic turbulence, especially when inflation erodes the value of fiat currencies like the U.S. dollar. Lippman emphasized that “gold has always outperformed currency” in difficult times—whether in the 1930s, the 1970s, or the 1990s. https://lnkd.in/gc4nbB49

Many of the major central banks (excluding Japan) are beginning or set to begin interest rate-cutting cycles this year. Here are four fixed income themes we believe could present investors with opportunities during the remainder of 2024. Key takeaways: - In anticipation of future rate cuts, we favour steepeners in the US and Germany, while monetary policy normalisation in Japan over the coming years favours a flattening yield curve expression. - Following a high degree of correlation in the performance of developed bond markets, diverging economic outlooks will likely open up relative value opportunities across sovereign bond markets. - Caution is warranted in corporate bonds – especially high yield – given rich valuations. As economic performance and monetary policy diverge, and the US dollar starts to face headwinds, active currency management is set to play an increased role in fixed income portfolios. By Julian Le Beron, CIO Core Fixed Income and Ranjiv Mann, Senior Portfolio Manager, Core Fixed Income at @@Allianz Global Investors #NavigatingRates #FixedIncome #rates #yields #centralbanks #investments #economy #bonds #ecb #fed