The First Day of Trading does not a Year Make

Chinese shares and the yuan stabilized with the apparent help of the government's guiding hand, but global markets are still on the defensive.  The euro extended yesterday's decline through the $1.08 level.  The next immediate technical objective is near $1.0730. 

Nudging China Toward Greater Financial Liberalization through the SDR

The IMF decided on 30 November 2015 to include China’s currency, the renminbi (RMB), in the elite basket of reserve currencies that determine the unit value of Special Drawing Rights (SDR). The IMF uses the SDR to supplement member states’ official reserves. Although the media has touted the inclusion of the RMB as a giant step forward for China’s international economic standing, its symbolism far outweighs the actual significance of the decision.

Market Drivers doing the Driving

The start of a new calendar year does not necessarily mean the rise of new market drivers.  In fact, the key issues investors face at the start of 2016 are the same that dominated Q4 2015. 

These issues center around pace of Fed tightening, the outlook for the world's second largest economy and its markets, the impact from the drop in oil prices, and commodity prices more generally, Europe will deal with the centrifugal forces that threatening it, and whether Japanese economy can find better traction. 

The Dollar Wins over the Euro and Yen

The US dollar will finish 2015 higher against both the euro and yen.  Sometimes those of us who follow the economic and financial news closely can be caught up with the short-term fluctuations.  As traders, that is what we do.  Investors, however, can take a longer look at developments. 

Taking a step back, we note that this is the fourth consecutive year that the yen has fallen against the dollar.  The greenback closed 2011 near JPY77.  It will likely finish this year near JPY120.  

The Renminbi-Dollar Complex

As China’s renminbi has been included in the IMF elite currencies and the Fed has started its rate hikes, conventional wisdom sees the RMB weakening and US dollar strengthening as simple long-term trends. The realities are far more complex, however.

Halfway to the (First) Holiday

The thinness of the order-driven capital markets is making price action that seems more inexplicable than usual.  The US dollar is mixed. It has recouped all the ground it lows against the euro yesterday, as the single currency briefly dipped below $1.09 in the North American morning.  It was unable to build on yesterday's gains that had carried it up to almost $1.0950.  Despite some fraying, the $1.08-$1.10 trading range still seems intact. 

Futures Activity Predictably Higher Pre-FOMC

Speculative position adjustments in the currency futures were minimal in the immediate aftermath of the ECB's December 3 meeting and US employment data the following day. However, activity dramatically increased in the days ahead of the FOMC meeting on December 16. 

Green Bonds Still in Too Few Hands

The climate summit in Paris has shown that global big business is now also on board with the transition to a low-carbon economy.

However, the most promising instruments in finance for promoting green investing, particularly green bonds, have been around for almost a decade now, starting with the European Investment Bank (EIB) Climate Awareness Bond in 2007.

Why haven’t green bonds entered the mainstream of finance, and what is holding them back?

Caution, Your Yuan Might Be Worth Less

Following the mini-devaluation in August, the yuan appreciated in September and October.  It began depreciating again in November and this has continued through the first half of December. 

The dollar finished the local session at new multi-year highs against the yuan.  Many observers see in the pre-weekend announcement about monitoring the yuan against a basket as an indication of the intentions of officials to push their currency down further against the dollar.

Speculators in the Futures Market are Getting Fiesty

Activity increased during the Commitment of Traders reporting week ending 8 December.  There were four significant (10k+ contracts) gross currency adjustments by speculators.  Given that this period covers the second largest gain in the euro's history, it is surprising that it did not meet the threshold.  It is astounding that speculators added only 1.8k contracts to their gross long position