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Sanctions and reserve requirements

| Posted by: Paul Donovan | Tags: Paul Donovan

  • Sanctions relating to Iran's nuclear program have been lifted (although the US imposed some new, more limited sanctions thereafter). Oil has weakened, allegedly in response although the lifting of sanctions is hardly a surprise.
  • A lower oil price is first and foremost economically redistributive, not an absolute positive or negative. As a supply driven event it also does not act as a proxy for global demand. However demand patterns for the US dollar may be impacted.
  • China has been attempting to strengthen the RMB, announcing reserve requirement ratios will be applied to onshore deposits from offshore institutions. This should have the effect of reducing the ability of those institutions to provide RMB liquidity offshore.
  • Fed speak at the end of last week was generally calm in the face of market moves. With manufacturing performing OK (real terms), services strong, and the labour market showing signs of broadening wage growth, there is no reason to be too panicked.