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Forex Flash: Downshift in EM equity performance illustrates contraction – Goldman Sachs

FXstreet.com (Barcelona) - The cyclical norms in EM sovereign credit and EM local yields are less instructive than those in FX and equity. Credit is performing better than the script for Slowdown would suggest, but this outperformance comes after a weak Expansion. Furthermore, yields declined, contrary to what we would typically expect based on the longer history, but more in line with their ‘modern’ behavior.

According to the Economics Research Team at Goldman Sachs, “The ‘downshift’ in equity performance makes some return patterns resemble more what is normally seen during the Contraction phase, rather than the Slowdown, which illustrate this by plotting a cross-section of returns seen during the current Slowdown phase against corresponding historical averages.”

However, these similarities cannot be taken too literally. While the pattern of out- and underperformers has been quite similar to what is normally seen in Contraction, the level of returns was considerably higher, as seen in the estimated intercepts in the above cross-sectional regressions.

Forex: USD/CAD in red around 1.0250/55

The Canadian dollar is advancing against the greenback on Thursday, hovering over 1.0250/55 in a context favourable to the risk-associated assets so far...
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Forex: EUR/USD at highs after moment of panic

A rumor that the French bank Societe Generale suffered big losses caused a moment of panic around the financial markets, with the stock plunging by 6% and the EUR/USD easing to 1.3027, also with a disappointed market after the US Philadelphia Fed manufacturing survey. Following the denial of such troubles in SocGen, the pair went for a wedge that only stopped at 1.3088 high, extending the daily range. As of writing, the market is trading at 1.3070/75, previous resistance during the European session.
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