Monday, 27 January 2014

Big Macs and big oil: some charts of interest today

In my Sunday evening (GMT) 'Stories we should be interested in' post (see link here) one of the charts I cited was this one on emerging market currency movements during last week:


What a big - and divergent - week it was. 

If the above chart is a classic 'voting machine' insight, the below chart is a 'weighing machine' one looking at value via the purchasing power parity theory based on the price of Big Macs globally.  Some interesting views below, especially on volatile currencies last week such as the South African Rand or the Indonesian Rupiah.  Food for thought. 


Otherwise, what strikes me is the relative lack of differential between some of the major currency crosses.  I still believe that European economic issues suggests the Euro should be weaker versus the US Dollar (akin to the Yen). 

Finally, an interesting chart from today's Financial Times concerning the oil companies and their lack of exploration expenditure value-add.  I am slightly amazed that these statistics could even be calculated given the long-term (and long payoff) nature of investments in the energy sector, but whether the big oil/gas companies can break out of this malaise (as noted last quarter here on this site) is important for both the sector and markets (given their high weightings) alike.  A number will be reporting this week to help provide insights. 


 

2 comments:

  1. This is just a thought Chris but could it be that the euro is so strong vs. the dollar due to that the big American multi-national companies are not bringing home their earnings from Europe?

    They even seem to take a cheap credit in the US to pay out dividends (ex. Apple) to their shareholder in comparison to bringing home their earnings.

    Would that make sense or have I completely misunderstood the situation?

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  2. Thanks for the comment. Yes, multi-national companies could have such an influence. Similarly the interbank/money market shifts globally can have an akin influence. There has been talk about US banks rebuilding Euro positions they withdrew from in the 2009-12 period recently. The other influence is that company's have retained overseas earnings as repatriation to the US can induce a taxation hit. There was some residual hope that President Obama would relax this ('tax holiday') but that hope seems to have passed. It has caused a bit of a problem for some companies as much of their cash is overseas but they pay dividends/undertake buybacks in the US. This is why some net cash companies in the US have raised bonds to help them manage this.

    Big picture I believe that almost everyone would like a weaker currency. In Europe though, one distortion remains Germany's high trade surplus, which theoretically would be accentuated if the Euro went down. The ideal would be a weaker currency for France/Club Med and a stronger one for Germany/other close countries. Not possible in a single currency zone...hence some of the tensions we have seen in recent years.

    I have found the Big Mac index as good as any FX predictor over time even though it is slightly leftfield.

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