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FxWirePro: Global FX radar and savings glut amid geopolitical and GFC

In FX markets, GBP retained a firm tone in European trade on Wednesday supported by British PM Theresa May’s unexpected call for a snap general election on June 8  seeking a stronger mandate for the ruling Conservative Party ahead of the upcoming Brexit negotiations. Elsewhere, prevailing geopolitical jitters continued to support top-rated sovereign bonds. Looking at the day ahead, the Fed is scheduled to release the latest Beige Book and Boston Fed President Eric Rosengren will speak about the US economy.

The global savings glut is reviving after a period of hibernation following the global financial crisis (GFC). The absolute level of East Asian current account surpluses in nominal US dollar terms has climbed beyond the previous high in 2006, while the rise of Western European surpluses has been striking.

The surge in European surpluses since 2006 has more than offset the collapse in Gulf surpluses following the drop in crude oil prices. The US still has the largest current account deficit, but its dominant position has slid compared to a decade ago.

The current account is fundamentally driven by the domestic savings-investment balance. The main factor behind the burgeoning surpluses in East Asia and Western Europe post-GFC is weak domestic demand, namely with domestic investment falling amid steady-to-higher national savings.

China ironically has been bucking this trend, as it unleashed domestic investment to spur growth post-GFC. China’s current account surplus is surprisingly lower than one would expect given its extraordinarily high national savings rate.

The global savings glut revival should again help to restrain global bond yields.

The non-USD Anglosphere currencies (GBP, CAD, AUD and NZD) are vulnerable in the event of another global financial shock given their reliance on foreign capital inflows.

The rise of the euro area surpluses solidifies the euro’s position as an emerging safe-haven currency, so long as the financial shock does not emanate from Europe itself.

Finally, trade and currency policy are unlikely to make much of a dent in the US-China current account relationship, which is fundamentally a symptom of much deeper and largely domestic macroeconomic forces.

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April 28 21:00 UTC Released

MXFiscal Balance (Pesos)*

Actual

340.61 bln MXN

Forecast

Previous

-1.93 bln MXN

April 28 21:00 UTC Released

CNFiscal Balance (Pesos)*

Actual

340.61 bln MXN

Forecast

Previous

-1.93 bln MXN

April 30 01:00 UTC 9696m

CNNBS Non-Mfg PMI*

Actual

Forecast

Previous

55.10 %

April 30 01:00 UTC 9696m

CNNBS Manufacturing PMI*

Actual

Forecast

51.6 bln $

Previous

51.8 bln $

April 30 23:30 UTC 14461446m

AUAIG Manufacturing Index

Actual

Forecast

Previous

57.5 %

May 1 00:00 UTC 14761476m

KRExport Growth Prelim*

Actual

Forecast

15.3 %

Previous

13.6 %

May 1 00:00 UTC 14761476m

KRImport Growth Prelim*

Actual

Forecast

21.0 %

Previous

27.7 %

May 1 00:00 UTC 14761476m

KRTrade Balance Prelim*

Actual

Forecast

Previous

6.27 bln $

May 1 00:30 UTC 15061506m

USNikkei Mfg PMI

Actual

Forecast

Previous

52.8 %

May 1 00:30 UTC 15061506m

JPNikkei Mfg PMI

Actual

Forecast

Previous

52.8 bln $

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