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2 Jun, 7 tweets, 4 min read
Role of #USD & #EUR in Global Monetary System:

[Charts from ECB Paper: 'International Role of Euro']

#Dollar continues to dominate FX Reserves, International Debt, Loans, Deposits, FX Turnover & Global payments

1/7
FX Transactions settled in CLS System (Continuous Linked Settlement)

▪️ USD led FX market => involved in ~90% of all settlements in Dec'20
▪️ EUR second most actively settled ccy

2/7
FX Share in Global FX RESERVES:

Sub-thread below

3/7
FX Share in International DEBT:
▪️ USD accounts for ~66% of all International Debt issuance
▪️ EUR share has declined to 23%

4/7
Borrowers of International Debt:
▪️ USD-denominated debt issuance by EM borrowers surged - favourable financing conditions in US

▪️ EUR-denominated debt issuance declined - less interest from US borrowers

▪️ Also rapid growth in USD-denominated green bond issuance in 2020

5/7
FX Share in International LOANS:
▪️ USD share declined but still dominant ccy => 54% of international loans
▪️ EUR 16%, Others 27%

6/7
FX Share in International DEPOSITS:
▪️ USD share of outstanding stock of international deposits ~54% => pandemic driven safe-haven Dollar demand + Fed's QE driven excess USD liquidity

▪️ EUR share 17%

@rodneyatwigram @chigrl

Reference:
ecb.europa.eu/pub/ire/html/e…

7/7

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More from @VaradMarkets

Varad Markets Profile picture
31 May
US #Inflation #DiveIn: CPI v/s PCE
Also why FED follows PCE?

▪️ Attached Summary of differences
▪️ Since 2000, overall CPI ~11% higher than PCE

▪️ Definition:
🔹 CPI: Out-of-pocket spending by non-institutional Urban Consumers
🔹 PCE: Includes Rural & all personal sector
1/12
Four Sources of differences: Scope, Formula, Weight, Others Effects

1⃣ Scope Effect:
🔹 CPI: Consumer Price Index => Survey of Households
🔹 PCE: Personal Consumption Expenditure => Survey of Businesses
▪️ 25% of PCE spending not captured by CPI

2/12
▪️ PCE includes spending by Govt, Firms, Non-Profits on behalf of Households
- E.G: Medical spending = Direct purchases by Consumers + Spending on medical goods & services by Medicare OR Employer's Health Insurance
- E.G: Public school education not an out-of-pocket spending
3/12
Read 12 tweets
Varad Markets Profile picture
17 Apr
#INR Macro check

▪️ #USDINR last 74.35 => ~1.4% off 75.35 highs => RBI's persistent #USD selling above 75.00 => with soft DXY, s/t consolidation in 74.00-75.35?

▪️ Risk Reversals, good gauge of nervousness, off highs (+1.6=>+0.9 vol) => less demand for USD Calls

1/11
▪️ Various economists revised India's GDP forecast lower
▪️ Good summary by @latha_venkatesh below
▪️ RBI GDP Projection +10.5% yoy FY 21/22 (Apr MPC)
▪️ Chart below: graphical overview of GDP trajectory - not that bad but whether worse yet to come?

2/11
▪️ When GDP collapses =>Trade Deficit tends to improve=>lower imports on poor aggregate demand
▪️ Q2 Apr-Jun'20=>massive reduction in trade deficit as GDP collapsed
▪️ Assuming only mild GDP hit in this COVID wave, associated trade deficit improvement should also be smaller

3/11
Read 11 tweets
Varad Markets Profile picture
12 Apr
#US #CPI March #Inflation tomorrow:

🚩Headline Exp 2.5% (vs 1.7% Feb)
🚩Core Exp 1.5% (vs 1.3% Feb)

▪️ That +1.0% gap would be largest Headline v/s Core CPI gap since 2011 on huge Energy driven base effects; 5yr avrg gap -0.20%, 2yr avrg -0.37%

1/4
▪️ Chart: Energy Inflation indeed so volatile
▪️ Food Inflation key contributor since COVID - likely to ease off marginally on base effects
▪️ Energy base effect => massive spike to Headline over Apr/May => Headline vs Core likely to diverge further

@chigrl
2/4
▪️ Energy Inflation, negative recently, was +2.4% Feb, could jump to as high as +8.5% yoy in Mar & +20% in April
▪️ Energy Index collapsed Apr/May'20 but Food Index jumped => opposite base effects

3/4
Read 4 tweets
Varad Markets Profile picture
12 Apr
US Swaption/Rates Vol off highs but still elevated

Reasons:
▪️ Economic data ahead; CPI tom; Fed data dependent
▪️ UST supply, 3y 10y 30y auctions this wk
▪️ US ylds, off highs, still close to higher end => risk premium in vols
▪️ Market v/s Fed disconnect on Rate Hike

1/4
▪️ SEP-based June FOMC important => till then would have got two more NFPs & Inflation data till May incorporating Apr/May base effect + stimulus based spikes => little kink around 3m in vol curve
▪️ Vol Skew mildly softer but still topside nervousness (convexity hedging)

2/4
▪️ Chart: 3m Expiry Vol across Swap Tenors => Front end swap tenors least volatile as anchored by Fed Fund/OIS/T-Bill yields

▪️ Chart: 3m10y Swaption Vol v/s 10yr US Yield: higher yield => higher vol as reflected in Vol Skew

3/4
 @bondstrategist
Read 4 tweets
Varad Markets Profile picture
8 Apr
India #RBI formally launches #QE:

▪️ Named 'Government Securities Acquisition Programme', G-SAP 1.0
▪️ Commits to specific amt of G-Sec purchases (INR 1.0 trn in Q1 FY2021-22)
▪️ At annualized INR 4 trn, that is ~7% of RBI Balance Sheet BS (Fed's $1.44 trn QE => ~19% BS)

1/5
G-SAP = YCC?
▪️ While RBI prefers 10yr yield to be ard 6.0%, formal Yield Curve Control YCC targets specific yld for specific tenor (BOJ Japan & RBA Australia) => unknown amt of bond purchase to meet yld target
▪️ RBI's G-SAP more QE (pre-announced amt) than YCC

@dugalira
2/5
G-SAP v/s OMO?
▪️ Practically not much diff but RBI generally does not commit to purchase amt under OMO
▪️ OMO more for liquidity mgmt => inject as well as absorb liquidity
▪️ QE purchase necessarily injects liquidity; targets backend ylds => BS expansion => Reserve Money ⬆️

3/5
Read 5 tweets
Varad Markets Profile picture
16 Feb
Trading #US $Dollar: Basic Macro Construct

Two key Dollar drivers:

#1 Growth/Inflation/Risk-sentiment (y-axis)=> Inflation Breakeven (BE) (/ Equities)

#2 Nominal Interest Rates (x-axis) => 10yr US Treasury Yield

1/10
Q=Quadrant

Q1: Risk-On-Lower Real Rates => Short USD
Q1: Risk-On-Higher Real Rates => Long USD
Q2: Goldilocks => Risk-On-Lower Nominal/Real => Short USD
Q3: Risk Off => Lower Rates => Equity Sell off/Bond Rally => Long USD
Q4: Risk Off => Equity & Bond Sell off => Long USD

2/10
Performance since COVID, Mar'20
Q1:
- Higher BE/Risk On + Higher Nominals => 31% of all observations
- Good success (85%) on Short USD under lower Real (18.4% of obs)
- But higher Real under Risk On only 20% success on Long USD
- So despite higher Real, USD lower on Risk On
3/10
Read 10 tweets

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