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US Dollar Remains Strong Against All Major Currencies.

Bloomberg reports bonds backed by loans to Spanish small businesses became the first asset-back securities to stop making interest payments last week after the benchmark rates turned negative.

According to JP Morgan the floating rate notes were part of a 2007 securitization that ceased making payments when the euro three month interbank offered rate or Euribor falls to zero.  The benchmark rate is now a negative 0.005%.

To write the incredibly obvious, the ECB’s $1.1 trillion euro QE program is distorting credit markets for according to Bloomberg yields on government notes from France to the Netherlands along with about 150 billion euros covered bonds have also dropped below zero.


Today is the conclusion of a two day FOMC meeting.  No change in monetary policy is expected.  It is the post Fed meeting statement all will focus upon.

Most are looking for a timetable however a definitive time table is unavailable.  Any change will be and always have been data dependent.

Monetary policy is interconnected globally where capital crosses boarders in an instant.  It is widely known and accepted a major reason why the US dollar has been very strong against all major currencies is the long held belief the US will increase rates before its trading partners.  As noted above the economies of the majority of global production is experimenting with negative interest rates.

What are the unintended consequences?

The FOMC will release its statement around 2:00.

Equites were mixed yesterday as several Dow stocks registered gains.  The NASDAQ however declined nominally on several earnings disappointments.  Treasuries were down for the second consecutive day on supply and inflation concerns.

Last night the foreign markets were  London was Paris and Frankfurt.  Japan was and Hang Sang

The Dow should open nominally lower ahead of the conclusion of the Fed meeting.  The dollar is poised to decline for the first month on ten on questions regarding the timing of a change in interest rates. European bonds traded lower as some are predicting that inflation is starting to accelerate in Germany, the region’s largest economy.   The 10-year is off 7/32 to yield 2.03%.

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Ken Engelke

Chief Economic Strategist Managing Director

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