Brain Teaser  You are to make 1,000 using only addition and the number 8.  i.e. you can add 88 to 88  What is the least number of steps to doing the sum and why? Question

Brain Teaser 5. You need to get the last digit to Ans

Market Update Pending home sales -5.6% yoy South Korean exports -7.3% yoy Chicago PMI: 65.9 (exp. 55) Annual meeting in China Case-Shiller HPI: +12.8% yoy China PMI: 51.6 (exp. 51.6) Week in Review

Quantitative Finance Society Global Macro Strategies

What is Macro? Demand Macroeconomics 101 Supply Interest RatesInflation Commodities, Equities, Bonds

Demand and Supply Demand – Financial demand – Actual (Physical) Demand E.g. Gold acts as a hedge and jewelry Supply – Affected by wages, strikes, weather, force majeure Which is easier to predict and which changes more rapidly? The determinants

Demand and Supply Different instruments react to differently to demand and supply changes – short term oil prices – D/S driven? – Copper prices? Elasticity What are the drivers of demand and supply – Think about gold for a minute Root of all pricing models

Interest Rates What are the Fed’s objectives? What is the Fed Funds Rate? – Also: what is LIBOR? What is the logic behind interest rate controls? Do every country use interest rates? – Impossible trinity The drivers

Interest Rates Role of lender of last resort When is the Fed interested in controlling inflation and when is it interested in controlling unemployment? How can interest rates change inflation and unemployment? Inflation and Unemployment Data

Interest Rates Open market operations Is the Fed printing money? The Fed on steroids – QE What is QE? The conundrum of bad data driving up the stock market How is it controlled

The Yield Curve How much would you pay for a 1-yr bond, 5-yr bond, 30-yr bond? What does the yield curve tell us about the economy? Interest Rates level 2

Foreign Exchange Largest and most liquid market – Unless you are a HFT, the market prices in everything before you can click Understand the terminology – Long USDJPY – Short CAD – EURUSD for An quick introduction USD JPY = How much USD per dollar of JPY What you buy What you sell

Foreign Exchange FX and interest rates – Increase rates  capital inflow  increase demand for currency  appreciation – What about: Increase rates  investment decrease  reduce demand for currency  depreciation ?! Some connections, or the lack of FX and economy – Growth  increase investments  increase demand for currency  Appreciation – Perhaps: Growth  increase consumption  increase imports  supply of current in FX market increase  depreciation WAIT, WHAT?!

Foreign Exchange Quick Math EUR/ USD USD/ JPY JPY/ HKD HKD/ USD 1.35 ?

Foreign Exchange GDP = C + I + G + (X-M) What drives the economy of – Germany, Japan, Singapore, Hong Kong – USA Importing inflation Why do they matter

Case Study 1980s – Asset bubble 1990s – Failed QE 2010s – ? Why is the economy fundamentally sound despite such “bad” data? Japan’s Deflation

Case Study Exporter of petroleum products, high end manufacturing, financial services Local firms have little footprint FX control over Interest Rates Singapore’s choice of monetary policy