‘Powerful’ USD Appreciation May Destabilize Risk Assets: Lombard
Source: BFW (Bloomberg First Word)
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Dario Perkins (Lombard Street Research Ltd)
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UUID: 7947283
(Bloomberg) -- Another “powerful appreciation” in USD may undermine “global reflation story” and cause “another wobble in risk assets,” Lombard Street chief economist Dario Perkins says in note.
Alert: HALISTER1- As USD appreciates, balance sheets of investors who have borrowed in USD deteriorate and their credit worthiness declines, which prompts a tightening in global financial conditions
- USD exchange rate has become a “barometer of risk taking,” replacing the VIX as a “global ‘fear indicator’”
- Surge in USD “potentially more dangerous,” since there’s a $10t offshore USD debt market, or 13% of GDP
- Global borrowing has reached $152t, record 225% of GDP
- USD strength may intensify global dollar shortage; already talk of USD liquidity squeeze before Trump’s election, “with clear tensions in money markets”
- Unclear how long impact of regulatory changes will persist, “not necessarily a trivial manner”
- If Trump succeeds in repatriating corporate profits, pressure on USD liquidity may intensify
- In extreme situation, Fed may have to take action, mainly by removing the stigma on its liquidity operations
Source: BFW (Bloomberg First Word)
People
Dario Perkins (Lombard Street Research Ltd)
To de-activate this alert, click here
UUID: 7947283