Confidence returns, with a twist: commodity prices still falling

•     Confidence returns, with a twist:  commodity prices still falling

–    VIX index collapses, indicating less fear about the future; gold falls sharply

–    Eurozone peripheral bond spreads tighten

–    Confidence in US economy rises as inflation accelerates, housing market improves

–    As confidence returns, carry trades come back into fashion

–    Yet oil, copper and other commodities continue to fall

•     Contrast may be due to supply shock or change in source of growth

–    Increase in supply is depressing price of oil & iron ore, maybe other commodities too

–    Change in locus of growth from EM (China) to DM (US, Eurozone) means less demand for commodities

•     Shift should help EM countries that are commodity importers

–    RUB, TRY, ZAR, MXN are highest-yielding EM currencies; RUB and MXN linked to oil

–    TRY fell sharply Friday but was best-performing EM currency we track over the week

•     Today: no major indicators

•     This week:

–    Tue: BoJ minutes of 18/19 June meeting; RBA minutes of July meeting

–    Wed:  BoE minutes of July meeting; Australia Q2 CPI forecast to accelerate

–    Thu: RBNZ expected to cut rates 25 bps = NZD negative?

–    Fri: PMI day in Europe, Markit PMI in US