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NY Opening Levels:
CURRENCIES
Current
COD (%)
EQUITIES
Current
COD (%)
EURUSD
1.3362
0.07
S&P 1st Future
1690
-0.07
USDJPY
99.12
0.34
Nikkei
14311.67
-0.65
GBPUSD
1.5895
-0.25
Shanghai Comp
2185.56
-2.05
AUDUSD
0.9336
-0.06
ASX200
5251.242
0.06
NZDUSD
0.81940
0.13
FIXED INCOME
Current
COD (%)
EURJPY
132.39
-0.20
UST Cash 10YR Yield
2.840
-0.87
$ Index
81.211
-0.10
Treasury Future
125.4375
0.30
Gold
1319.23
0.11
JGB Yield
0.711
-1.51
Main Macro Events London:
UK CPI 2.7%.. Core touch weaker at 2.0% – PPI on soft side
Headline CPI in line – but the details weaker – clothing, petrol and airfares were the biggest drag on the CPI.. m/m below forecasts at +0.4%
EURGBP – Macro interest to sell the spike higher on UK data.. Macro fund jobbing delta on a put option fwiw – not directional flow as such but may be keeping it subdued
ZEW very strong – expectations rise to 49.6 from 42.0 (exp 45.0)…Current situation rises to 30.6 from 18.3 (exp 20.0)
EURUSD ticked higher on the release – but not dramatic move by any means given strength of the number – ran into offers almost immediately.. Market eagerness to buy USD on a dip just seems to increase as we get closer to Fed.
EURGBP taking the brunt of the ZEW data .. could be some upside to the cross, as EURUSD appears to find good supply. Combination of EURGBP below 0.8400.. soft UK inflation and monster ZEW is very bullish EURGBP we feel. Stops 0.8400 / 05 likely to be targeted and GBPUSD stops below 1.5880 / 00 may add weight to the move.
Spain Sells EUR 4.56bn of bills – EUR 3.122bn of 12mth / EUR 1.44bn of 6 months – bid to cover : 3.72x (12 mth), 1.85x (12mth) -average yield 1.367% vs 1.253% at Aug 20th Auction. Borrowing costs rise.. and we would just highlight our earlier note regarding Spain’s vulnerability to higher yields with a predominance of short dated debt
Main Macro Events Overnight:
Fed Chair: Late NY DJ quoted “senior administration officials” as saying “search for Fed Chair nominee not starting over after Summers’ withdrawal” and “no new candidates being considered” – “no Fed announcement this week”.
WSJ article stating “Yellen Is Now Top Fed Hopeful” http://online.wsj.com/article/SB10001424127887324665604579079501712799442.html?mod=WSJ_LatestHeadlines
Hilsenrath: Article (also in WSJ) worth a look where Hilsenrath says “Fed faces Tough Sell on Low Rate Strategy”. Says the Fed face a “communication challenge” this week in justifying a continued low rate strategy when their own forecasts are showing the economy is “regaining its health”. http://online.wsj.com/article/SB10001424127887323342404579079143276866818.html?KEYWORDS=HILSENRATH
RBA – Minutes from Aussie CB say “further rate cuts are not off the table, though a rate cut is not imminent” (http://tinyurl.com/na6gknm)
USD/Asia traded generally higher with locals citing position squaring ahead of the FOMC, and locals looked to fill the post Summers gap – fairly effectively. BOK were rumoured in KRW and helped support the pair. Should be noted Korea finishes the week today and is on holiday 18-20 Sep.
EURUSD (London Session): EURUSD continued the bid found in late Asian trading as some of the NY press appeared to reinforce the Yellen for Fed view. Strong ZEW obviously helped, but there are offers around, and trade has been muted.
EURUSD (Asian Session): EURUSD once again found little interest in Asian trade. Focus obviously on Fed but market will look to the ZEW number at 10am London for direction. Current Situation component expected to strengthen from 18.3 to 20.0 and Expectations expected to rise from 42.0 to 45.0. As always on the ZEW we would caution that this is a survey of financial market participants, and as such is coloured by market sentiment. We highlighted yesterday that the follow through in EURUSD post Summers was a little underwhelming, failing to break 1.3380 twice, and could see EURUSD vulnerable if the ZEW disappoints.
EURUSD Expiries: 1.3150 (50m), 1.3175 (348m), 1.3200 (209m), 1.3220 (50m), 1.3245 (50m), 1.3250 (50m), 1.3325 (80m), 1.3350 (50m), 1.3360 (70m), 1.3535 (50m)
GBPUSD (London Session): GBPUSD broadly lower on profit taking, and the softer inflation data. Market also in risk reduction mode ahead of the Fed and keen to take profit on long GBP positions after a 3% rise in GBPUSD this month.
GBPUSD (Asian Session): Similarly to EURUSD, GBPUSD was largely side-lined in Asia, with little interest noted. Focus very much on today’s inflation data and I would flag a piece I sent out last night where Citi are calling for a larger fall in CPI than market is forecasting. Consensus 2.7%, Citi 2.6%, Previous 2.8%. However downside risks to GBPUSD (or upside EURGBP) seem limited ahead of FOMC or ZEW half an hour later. GBPUSD has risen in 11 out of the last 12 days, and is up around 3% this month, so some risk of longs unwinding as FOMC jitters bite. Also remember we have crucial MPC minutes Wednesday, with worries there may be further dissention in the MPC and that QE may still be alive and well in the UK.
GBPUSD Expiries: 1.5500 (70m), 1.5605 (100m), 1.5650 (50m), 1.5925 (25m), 1.5980 (75m)
USDJPY (London Session): Remained range bound with a subdued market and better interest to add to USD longs in USDJPY ahead of Fed. Talk of Japanese lifers on the bid early London, although there has been interest from RM and leveraged also over the last 24 hours. Japanese names continue to have interest to buy the pair, although some exporter offers at 99.30/50 are capping for the moment. One UK desk calls for USD long positions to be held as long as we don’t breach the 98.45 / 50 support that In Touch highlighted in the London opening morning meeting.
USDJPY (Asian Session): Tracked higher despite a softer Nikkei – Japanese stocks underperforming despite equity gains yesterday when Japan on holiday. Japanese names were good buyers USDJPY for the Tokyo fix, and saw continued interest to buy AUDJPY. With AUD reluctant to track higher, the JPY leg took the brunt. 98.50 remains crucial level (based here twice this month), and for those looking to be long USD into the Fed, that was an attractive level to pick up USDJPY. 100 day ma at 99.06.
USDJPY Expiries: 96.50 (50m), 97.70 (50m), 97.90 (50m), 98.00 (40m), 98.50 (100m), 98.75 (30m), 98.90 (60m), 99.00 (20m), 99.10 (80m), 100.50 (250m), 101 (581m), 101.50 (30m), 102.00 (410m)
AUDUSD (London Session): AUD Trade better during the London session, following the general pattern to sell USD on Yellen. Worth noting that 0.9366 100 day ma should provide some resistance. At the point of writing AUDUSD trading at the post RBA minutes highs from overnight and found good offers around there in Asian trade
AUDUSD (Asian Session): RBA minutes the highlight, with the RBA maintaining their easing bias. (link to full statement above) “Further rate cuts are not off the table, though a rate cut is not imminent”. RBA indicated that they would prefer to see an easing come from a lower AUD, and the FOMC meet more firmly into focus as a result. Market seems evenly balanced on rate prospects, so very much data dependent from here. Local traders cite yesterday’s failure to break 0.9400 as bearish, and an initial bid for the AUD on the minutes met good offers and continues to trade heavily. Support around these levels with 0.9289 the 61.8% of the 0.9224 / 0.9394 (Friday low / Post Summers) up move. AFR headline that “Rates may fall further as businesses remain cautious” (http://tinyurl.com/o8rqpuc) being flagged by locals.
AUDUSD Expiries: 0.9030 (50m), 0.9035 (25m), 0.9080 (23m), 0.9160 (50m), 0.9200 (110m), 0.9225 (50m), 0.9300 (30m), 0.9350 (20m), 0.9400 (90m), 0.9435 (85m), 0.9500 (125m)
Other In Touch FX Pieces this morning:
GOLD – Goldies staying neutral on gold in the near term but still bearish going forward. end 2014 target remains unchanged at 1,050 (spot currently 1319)
Spain – few guys passing round a story from this morning that highlights a potential vulnerability to higher yields for Spain.
Spanish Treasury has been increasing sales of short term debt to take advantage of the rally in European markets, but in doing so has increased its vulnerability to higher yields. The average duration of Spanish sovereign debt is at its lowest level in a decade (6.24 years as at end of August), and the level of debt due for redemption in less that 18 months rose 9.2% in the first seven months of the year.
Spain has EUR 205.118bn of debt maturing before the end of 2014, (23.63% of the EUR 868.131bn total debt burden). Rajoy also needs to finance a projected budget deficit of EUR 59bn.
TRY – CBT says it is to implement “additional monetary tightening Sep 23rd”
PLN – UK Bank’s internal algo has been a large buyer of EURPLN this morning, possibly triggered by yesterdays failure at the 200 day ma (currently 4.1905).. more macro guys continue to like EURPLN lower, but suspect that a short market will look to take some profit around here ahead of the FOMC. Worth flagging that the move higher has taken USDPLN back through the 5 year trend line (from 21st June 2008) which broke yesterday. (see attached). I plot the line at 3.1540 but there is always a little degree of variance on this long term a trend line.
BTP futures jump ahead of Berlusconi speech at 11:00 London. One US house saying it could be mildly bullish for BTPs in the short-term. Italian press (La Stampa article flagged yesterday) anticipates that the message will be broadly supportive of the government Also expects that Berlusconi could ask for an aggressive tax reduction policy”…One large German house’s Italian rates desk suggest to us that there is no room for tax cuts.
Short Sterling got thumped ahead of the UK data.. Swaps desks talking about hedging flows going through from mortgage players. Worth noting mortgage activity is picking up in the UK from the housing scheme.. so makes sense for these guys to start being more active with their hedging. No talk of leaked data – and GBPUSD only a touch higher so backed up the idea of mortgage flow.
USD/ASIA: Highlighted talk of BOK interest to buy USDKRW overnight, but now hearing there was a more general interest to buy USD / Asia from Asian Central banks yesterday. Good source telling me Asian Reserve managers bought a total of USD 4bn yesterday. Still feels strange flow given their dramatic efforts to strengthen to strengthen their currencies against the dollar, but we know they are extremely short USD, and assume they saw the post Summers dollar dip as a good opportunity to soak up some liquidity without dramatically hurting their own currency.
London Option Opening Levels:
ATM VOL
EURUSD
GBPUSD
USDJPY
AUDUSD
Mid
Change %
Mid
Change %
Mid
Change %
Mid
Change %
Overnight
9.165
16.01
9.700
20.24
13.095
15.83
13.045
6.19
1 Week
8.430
2.24
8.275
-0.87
13.040
1.93
11.670
1.08
1 Month
7.398
0.41
7.115
-0.11
11.753
-0.82
10.563
2.85
3 Month
7.535
-0.07
7.045
0.71
11.655
-0.72
10.535
3.13
6 Month
7.930
-0.75
7.145
-0.14
11.658
-1.25
10.505
2.04
1 Year
8.805
0.00
7.650
-0.39
11.820
-1.17
10.760
1.61
25D RR
EURUSD
GBPUSD
USDJPY
AUDUSD
Mid
Change %
Mid
Change %
Mid
Change %
Mid
Change %
Overnight
-0.738
-13.03
-0.385
12.50
-0.855
9.52
-1.175
-12.17
1 Week
-0.763
-12.13
-0.323
16.77
-0.720
8.28
-1.235
-5.11
1 Month
-0.595
2.86
-0.595
2.86
-0.828
3.22
-1.883
-6.66
3 Month
-1.360
1.81
-0.995
0.50
-1.043
6.71
-2.658
-3.30
6 Month
-1.695
0.29
-1.315
1.50
-1.298
3.17
-3.170
-1.60
1 Year
-1.945
0.00
-1.590
-0.63
-1.548
4.18
-3.700
-1.51
Euro Morning News:
-ECB’s Liikanen: Rates to remain low for extended period; ECB to monitor changes in excess liquidity; policy transmission differs across Eurozone; banks still need higher capital levels
-Eurozone Jul Current a/c surplus in-line w/prev: €16.9B
-UK Aug CPI in-line w/cons y/y: 2.7% (2.7% cons); m/m 0.4% (0.5% cons)
-UK Aug CPI Core lower than cons y/y: 2.0% (2.1% cons)
-UK Aug RPI higher than cons y/y: 3.3% (3.2% cons)
-German Sep ZEW Survey (Econ Sent) beats cons: 49.6 (45.0 cons); ZEW (Curr Situation) beats cons: 30.6 (20.0 cons)
-3mth Euribor fixes lower than cons -0.1bp (unch cons) at 0.222%
-Merkel: decision on next Greek steps in 2014; does not see new Greek haircut
-Sources: Berlusconi to refrain from trying to bring down Letta’s government (cite pre-recorded video message)
-UK sold partial stake in Lloyds at 75p / share (lower end of range 75p-76p); total proceeds £3.21B
Overnight News:
-WSJ’s Hilsenrath: Fed is facing a communications challenge; looking at how to justify low rates into future; updated forecasts for 2016 complicate Fed projections & could show full employment by 2016; forecasts likely to show rates rising but still low by 2016
-Officials: Yellen now leader in race for Fed chair nomination; search is not re-starting & no new candidates being considered
-White House: Obama still expects to name fed nominee in the autumn
-US Navy Shootings: Washington DC police do not suspect terrorist involvement
-Obama: still work to be done on Syrian weapons accord; agreement could end chemical weapons threat; econ is not yet where it needs to be; will not renegotiate with lawmakers on debt ceiling
-US: biggest banks released results of internal stress tests; generally show better capital ratios; some analysts suggest results not comparable to Fed’s stress tests released in March
-Italy Doc: Italy will raise 2014 debt forecast by 3.2pts to 132.2%; can’t afford 2013 deficit breaking 3% ceiling (Italy Is due to update forecasts on Fri)
-Greek PM Samaras: going through end of recession; next few months are crucial; expects a primary surplus this year
-Irish Fin Min: if GDP & tax figures are positive, could give potential to ease Irish budget
-German SPD Spokesman: wlll give the FTT another push if Merkel enters coalition with SPD
-UK Biz Sec Cable: should think about changing Help-to-Buy & FLS programs to prevent a house price bubble
-UK Biz Sec Cable: early coalition break-up is possible a few months before polling; not had those conversations yet
-UK Govt: plans to sell £3.3bn stake in Lloyds Banking Group (about 6% of company’s issued stock)
-BoE Q3 Quarterly Bulletin: contacts express concern over China growth; strong eco data put further upward pressure on yields
-China: Aug FDI misses at 0.6% y/y vs 12.5% cons
-China MofCom: trade growth should stabilize in next months
-Japan FinMin: will be tricky to cut corp tax at the same time as hiking the sales tax; want an extra budget without issuing bonds
-Japan EconMin: PM’s view on corp tax cuts is more important than the Fin Ministry’s
-RBA Minutes: agreed to maintain the possibility of more rate cuts, but not signaling an imminent cut; policy is appropriate; low rates & lower AUD providing substantial stimulus
-JP Morgan: said to agree to $750mln in whale fines to end regulatory probes
-Nasdaq OMX: halts trading in all options due to price reporting issues
Syria:
-UN’s Ban: evidence of Sarin delivered by rockets; will support US-Russian framework in any way; as expected, report does not say who used chemicals in Syria
-US, UK and French UN Ambassadors on UN Syria Report: shows Assad responsible for chemical attacks; Russian UN envoy says should not jump to conclusions
-France: confident of reaching a deal with Russia on a UN resolution
-Turkey confirmed it shot down a Syrian helicopter earlier yest after it violated airspace; Syria calls the shooting hasty
-US Sec of State Kerry: US is not softening opposition to Syrian Pres Assad