Welcome back to On the Daily, FXDD’s daily research blog. Recently we took a brief break to reorganize some of our internal models and methods to enhance our research process. In addition to updating our models, we are updating our content delivery services. In the coming weeks, On the Daily will be migrating to Substack. You can find the link by clicking here.

In the meantime, here are our latest updates:

  1. Global economic momentum edged marginal higher yesterday, on the back of US Consumer Durable Goods data. Yet, the disconnect between risk markets and economic momentum seems to be persistent. As we have said previously, we continue to think this divergence is likely due to options activity going into options expiry and end-of-quarter. Therefore we believe allocations should be consistent with fundamental momentum.
  2. Looking at global central banks, yesterday, ECB’s Lagarde came forth with another dovish message, telling markets to look past “transitory: inflation pressures in the EU. This is in contrast with the Fed and BOE, who have decidedly taken a more hawkish tilt. This dynamic isn’t a surprise to us, and we have been making the case that central bank divergences would be the primary driver of FX moves post-COVID since the depths of the COVID-19 crisis in 2020.
  3. Aggregating all these developments, markets remain mixed. Commodities seem to have found life recently, and global stock markets remain weak. The dollar remains in a substantial uptrend quarterly, and international bond markets continue to remain under pressure. The overall mix of asset markets continues to point to the global economy being in an expansionary environment. Therefore we continue to think risk-on exposure is the best way to go.

Stay tuned for updates on our Substack launch! In the meantime, here are our data monitors. Let us start with our tracking of global economic momentum:

Additionally, we show our high-frequency tracking of US Growth indicators:

Next, we offer our Market Environment Monitor, which aggregates the growth and inflation signals from major global investment markets to tell us what the current market environment is, i.e., expansion, inflation, deflation, or stagflation:

Finally, we show our proxy for capital flows using our Currency Bloc Monitor, which aggregates exchange rate moves across 20+ currency pairs into significant regions or Blocs. We offer the evolution of these Currency Blocs over time:

Until tomorrow!