Category: business

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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

It’s Friday Thursday, Friday Thursday, gotta name charts on Friday Thursday.

About two thousand years ago a semi-successful execution took place, and as a result you have two extra days to figure out the identities of the charts below.

If you believe you have succeeded, to send your answers to [email protected] with the subject ‘Quiz’ — letting us know if you wish to remain anonymous — before noon UK time on Tuesday.

Get them right, and you could win a T-shirt.

Good luck, and Happy Easter to those who celebrate. Also, if you like quizzing reminder that tickets are on sale for our next London pub quiz, on 15 May.

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

It could be argued that FT Alphaville disproportionately covers the Office for National Statistics. So let’s quickly talk about Eurostat instead.

In May 2023, we wrote about how response rates to the UK’s Labour Force Survey — the big daddy of employment surveys — had dropped to near-critical levels. Lo, a few months later the series became too unreliable to publish, and we’re still waiting for a replacement.

As we wrote at the time:

Eurostat’s figures aren’t as easy to uncover as the ONS’s, and its press officers said they don’t track aggregate non-response data as a time series. But its latest quality report for the EU LFS (covering 2020) at least points to some of the issues that can occur.

You might hope that, two years later, there would be more of those LFS quality reports available, with new nuggets of information about response rates.

That would be a fool’s hope. The relevant page hasn’t been updated since March 2022.

Alphaville emailed Eurostat to ask about this. A spokesperson told us:

2023 and 2024 quality reports will be published, but we cannot give precise information on when this will happen.

We asked why, and they’ve promised to get back to us when they find out a reason.

As a result of this situation, we will not be covering Eurostat further at this time. There’s a lesson in there about transparency, but as journalists we don’t want anyone to learn it.

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Your guide to what Trump’s second term means for Washington, business and the world

Steven Kamin was previously head of international finance at the Federal Reserve and is now senior fellow at the American Enterprise Institute.

In the wake of President Trump’s initial salvo of broad-based tariffs, on 2 April, stock prices plunged, volatility as measured by the VIX index soared, and Treasury yields shot up substantially.  

Ordinarily, these developments would be expected to buoy the value of the dollar, which is a “flight-to-safety” currency sought out by investors during times of crisis and acute uncertainty. Instead, the value of the dollar, too, plunged. In fact — relative to the predictions of a simple econometric model — the dollar fell by the greatest margin in the past four years. 

This suggests that the turbulence in the financial markets was more than just investors getting “yippy,” in Trump’s words. It may reflect the beginnings of a serious reconsideration by global investors of the performance and management of the US economy and the dollar.

The US dollar is the world’s most important currency. More than half of all international trade, including between non-US countries, is priced and invoiced in dollars. The lion’s share of international financial transactions are done in dollars. And nearly 60 per cent of the world’s international reserve holdings are in dollars, despite US GDP comprising only about a quarter of world income. 

As my colleague Mark Sobel and I have explained, the dollar’s dominance derives from the strength and dynamism of the US economy, the unchallenged stature of our rule of law, the prudence of our economic policymaking and our close co-operative relations with our allies. But we have also cautioned that if the US abandons these strengths, pursuing reckless trade and fiscal policies, breaking trade agreements, bullying our allies, and undermining support for global institutions, this will encourage other countries to seek alternatives to the dollar. Trump has threatened countries with tariffs if they abandon the dollar, but nothing could accelerate that process more effectively than reckless actions against our trading partners.

Is this process now under way? It is early days, but the financial turbulence surrounding Trump’s chaotic tariff announcements, and especially the rise in Treasury yields combined with the fall in the dollar, is not a good sign. As indicated in the chart below, a surge in financial market volatility (the VIX index) after Trump’s announcement triggered a “dash for cash” by leveraged hedge funds, fuelling a sell-off in Treasury bonds that led to soaring yields.

Deleveraging-driven sell-offs in the Treasury market are unusual, because the demand for safe assets such as Treasuries tends to rise during times of volatility and crisis, lowering their yields. To be sure, such episodes are not unprecedented, and a similar sell-off occurred during the March 2020 Covid-19 panic, when again both Treasury yields and the VIX soared upwards until massive intervention by the Fed managed to calm markets.

However, there is a notable difference between the Covid-19 panic and the Trump tariff panic. In the former episode, the dollar — being a “flight-to-safety” currency — soared alongside the VIX as markets freaked out.

Conversely, in recent days, the dollar appears to have failed to benefit from flight-to-safety flows, and it has fallen well below its level prior to Trump’s April 2 tariff announcement:

How significant is this aberration? To make a more precise assessment, we estimated a simple equation regressing the level of the dollar on the 2-year Treasury yield, the difference between the 10-year and 2-year yields, and the VIX. As shown in the table below, all three variables are highly statistically significant, and they explain 85 per cent of the variation in the dollar since 2021:

Below is a chart comparing the actual and predicted values of the dollar. There are, of course, many misses between predicted and actual levels of the dollar, but the Trump tariff episode at the end of the sample appears to represent the largest such error. The model expects the spike in the VIX to substantially boost the dollar, but instead the dollar fell:

This is confirmed by a plot of the regression residuals, below. To be sure, the chart indicates serial correlation of the residuals, so the results need to be taken with a grain of salt. Even so, the miss on the dollar is extraordinarily large:

Does this mean the end of dollar dominance? Probably not. The pre-eminent role of the dollar in trade, international finance, and reserve holdings is hard-wired in place by network effects, institutionalised practices, and the lack of viable alternative currencies, and it will take time for them to erode. 

But it is clear that, at least during this episode, the dollar has stopped acting like a “flight-to-safety” currency. The simultaneous rise in yields and fall in the dollar suggests a pullback from dollar assets that may reflect mounting concerns about the chaotic direction and implementation of US economic policy. 

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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

After a few abject quiz-difficulty failures from yours truly, it seems that last week’s instalment erred towards the easy setting. It probably helped that there was a fairly obvious theme to all of the charts.

Which were . . . 

The 10-year US Treasury yield in 1994, the infamous “bond massacre” that led James Carville to quip about wanting to come back as the bond market so that he could “intimidate everyone”.

30-year UK gilts around the time of the LDI blow-up. Unsurprisingly, a lot of UK readers got this one.

And finally . . . 

The closest thing to a curveball in this quiz, this shows the 10-year Irish sovereign bond yield (we also accepted the eight or nine-year yield because of data shenanigans. Ireland didn’t issue 10-yrs regularly). That was a pretty pricey guarantee.

Thankfully, quite a few people were ever-so-slightly tripped up by the different maturities used. Otherwise the list of correct guesses would have been stupidly long. But the following still managed to nail it: Henry Yates, Anthony Russo, Theo Clarke, Connor Elliott, Anthony Cheng, James Klikis, Will Moss, Henri de Laromiguière, Andrew Simmons, Ethan Levine, Sean Lightbrown, David Lynch, Connor Murtagh, Javier Martinez Pérez, Rory Boath, Sam Lee, Olly Wisking, Ziyodulla Abdullaev, Thomas Ryan and Killian Fitzgerald.

This wasn’t quite the 39 people that once got one of Louis “Blackjack-Homer” Ashworth’s quizzes right, but it would have pipped him if more people had gotten the UK or US maturity right.

Aaaanyway, to the Wheel of Names . . . 

Rory Boath becomes a two-time charts quiz winner, meaning he is both clever and lucky. What more could one wish for in life?