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CURRENCIES
Current
COD (%)
EQUITIES
Current
COD (%)
EURUSD
1.3175
0.14
S&P 1st Future
1637.5
-0.09
USDJPY
99.56
-0.24
Nikkei
14053.87
0.54
GBPUSD
1.5627
0.62
Shanghai Comp
2127.618
0.21
AUDUSD
0.9164
1.14
ASX200
5161.637
-0.67
NZDUSD
0.78920
1.14
FIXED INCOME
Current
COD (%)
EURJPY
131.19
-0.21
UST Cash 10YR Yield
2.873
0.52
$ Index
82.249
-0.14
Treasury Future
124.453125
-0.16
Gold
1402.32
-0.48
JGB Yield
0.769
3.06
London Themes
Data focus on the PMI numbers and with France, Germany and Spain beating forecasts, helped support risk.
IMF paper prepared for the G20 summit says global growth remains subdued and led by US at the moment. Unlocking crtedit supply and embarking on credible banking union is “crucial” for European recovery. Fed tapering possible as early as September and EM growth projections to be revised lower.
Asian themes
Market still generally happy to be long USD with Syrian tensions simmering and US involvement with Congressional support looking more likely after a key committee agreed a draft resolution backing use of force in Syria. The draft limits any operation to 60 days and does not permit the use of ground forces.
HSBC Chinese Services PMI which came in stronger at 52.8 after 51.3 in July. This provided some support to risk currencies in Asian session, and largely negated the USD move in the majors.
EURUSD: London Session
Frustratingly caught between better PMI data and a market still looking to buy USD on dips.. and led to EURUSD trading a tight range. 1.3180 Asian highs has held despite a few attempts to break higher in the London morning. UK numbers once again very good, particularly bearing in mind the fact that they showed such upside surprise last month.
EURUSD: Asian Session
Once again EURUSD remained in a tight range in Asia. Some support found from the better Chinese Services PMI data, and that largely negated the USD buying on US / Syria headlines and stronger ISM data. Initial resistance at 1.3180 (Asian high) and 1.3200, support at 1.3146 (200 day ma and overnight low) then 1.3135 (100 day ma). 1.3103 is the 50% retracement of the 1.2755 / 1.3452 upmove and bids seen above 1.3100. Focus in the European morning will be on the Service sector PMI releases.
EURUSD Expiries: 1.2950 (297m), 1.3000 (100m), 1.3050 (30m), 1.3085 (50m), 1.3100 (405m), 1.3125 (198m), 1.3150 (190m), 1.3200 (30m), 1.3218 (26m), 1.3250 (41m), 1.3270 (20m), 1.3300 (21m)
GBPUSD London Session:
GBPUSD again outperforming its peers and although not a huge move (70 pips – less than 0.5%) it stands out with the tight ranges in G10. Goldman’s Economist highlighted the surprise climb from already elevated levels as “really impressive” and makes the composite consistent with growth of around 5.5% annualised or even higher. Obviously some way off that at the moment, but if the component parts keep showing such solid performance, the banks will start raising their forecasts fairly quickly.
We produced the following on the Vodafone / Verizon deal – see attached details
VODAFONE / VERIZON – MARKET POSSIBLY UNDERESTIMATING GBPUSD FX FLOW
Quick breakdown of flows and FX implications
Vodafone sell 45% stake in Verizon Wireless for USD 130bn
Vodafone to receive roughly USD 60bn in cash of which USD 23.9bn will be paid to shareholders
With London and Nasdaq listings, and approximately 40% of shareholders holding the US stock – it is being widely assumed that the potential GBPUSD cash flow is USD 14.34bn or GBP 9.2bn.
However – We would look to the detailed press statement on the deal, and rather hidden in it is the proposed launch of a new R&D investment programme – and talks of GBP 6bn of investment over the next three years. It is not explicit, but we would say it is inferred that this “Project Spring” will be funded by the Verizon Sale proceeds.. meaning another GBP 6bn to be bought. The question was always how much Vodafone would leave in USD for further investment – paying down debt etc.. but we would say as well as the shareholder dividend, there is this requirement for GBP 6bn, and they will convert the cash back to GBP to earmark for this three year programme.
We would suggest that the potential cash flow could be as high as GBP 15.2bn rather than the GBP 9.2bn suggested in most reports (approx. 70% more than market looking for).
GBPUSD Asian Session:
Similarly to EURUSD GBPUSD remained in a tight range caught between USD buying on geopolitical risks and some risk positive data. Last few days have seen Sterling outperform it’s peers, largely on the Vodafone / Verizon deal, as well as some unwinding of the month end flows, but big focus on the Service Sector PMI release at 09:30 after strong numbers from Manufacturing and Construction sectors. 200 day ma at 1.5500 is supportive – initial resistance at yesterdays 1.5603 high. Upside may be restricted though as market still looks to buyers of USD on any dips.
GBPUSD Expiries: 1.5300 (297m), 1.5430 (162m), 1.5435 (244m), 1.5505 (61m), 1.5700 (271m)
USDJPY London Session: Capped below 100.00 with retail names on the offer as well as macro accounts happy to trim down longs ahead of 100.00. Similar to so many markets pre payrolls / pre Fed, a lot of the moves are about position reduction. Overall view still one of Fed tapering and Yen weakness but tempered by position squaring
USDJPY Asian Session:
Still appears to be the cleanest way of expressing the strong USD view, and Europe enters with USDJPY trading towards yesterday’s London high at 99.86. Japanese investors and leveraged names still cited as buyers, but retail flows still seen on the offer ahead of 100.00. Kyodo news reports that PM Abe will announce the sales tax on October 2nd, and the Asahi news service reported that BOJ will consider further easing if the PM follows through with plans to raise the sales tax to 8% in April.
USDJPY Expiries: 98.25 (100m), 98.50 (100m), 98.95 (180m), 99.00 (50), 99.10 (100m), 99.70 (50), 99.90 (50), 100.00 (70m), 100.30 (50)
AUDUSD London Session:
Continued the Asian move, and short positions continue to trim back on the better data and Stronger AUD GDP. Stops triggered through 0.9100 (50 day ma and Fibonnacci level) but flow light.
AUDUSD Asian Session:
Once again the AUDUSD was the standout mover in the Asian session with a strong AUD GDP release (+2.6% y/y vs +2.4% forecast), and the Chinese Services PMI data giving the market a good reason to lighten up the positions – having been overly short AUD. Local traders cite offers ahead of 0.9100 and worth noting that 0.9104 is the 61.8% retracement of the 0.9234 / 0.8894 (19th Aug / 28th Aug) downmove. 50 day ma also at 0.9099. Wide range of names have been buying back short with real money, macro and leverages all seen. Still seeing interest to sell the bounce, although we have seen this all the way up. Citi said this morning though that their order book is “totally skewed towards rally sellers in AUDUSD with little in the way of stops until 0.9300.
AUDUSD Expiries: 0.8750 (101m), 0.8925 (50mm), 0.8950 (75m), 0.8955 (49m), 0.8960 (49m), 0.9000 (30m), 0.9050 (50m), 0.9055 (25m), 0.9100 (141m), 0.9165 (100m)
TRY - Local Turkish news service Milliyet citews deputy PM Ali Babacan as saying $11bn left Turkish markets in the llast three months.
$8bn – swap markets,
$2bn stock market
$1bn bond markets
Babacan was keen to point out that the majority of outflows were in the swap market rather than equity or bond markets, and says banks capital adequacy and liquidity is high and asset quality fine
Says government looks to announce a medium term programme before mid October
Looks for Turkish GDP in excess of 3% in 2013.
CZK - very strong retail sales – rose from -2.5% in June (revised from -2.7%) to +4.0% in July – expected at +2.7%.. EURCZK 40 points lower immediately after at 25.735 from 25.775
HUF - Hungarian Retail Sales also better at+1.2% (exp +0.5% from -0.4% in June).. Final G2 GDP data was unrevised at +0.5%
EM - Indonesian Finance Minister critical of the US Fed’s lack of “transparency about the process” regarding tapering.
“We are living in an interdependent world”, and uncertainty as to policy made it “rather difficult” to formulate policy in the current volatile environment.
http://www.ft.com/cms/s/0/5be9d8ee-148b-11e3-b3db-00144feabdc0.html?siteedition=uk&siteedition=uk#axzz2duNEU57M
Reserve managers have seen a sharp reduction in foreign currency reserves in the last few month, as Asian Central Banks have sold USD to smooth the impact to their currencies from the high Beta EM exodus. In a report overnight, Citi attempt to assess the impact and highlight the risk of reserve rebalancing on FX.
Essentially the flow will be USD positive. ACB’s have bought local currency and sold almost exclusively USD – and Citi calculate reserve losses to be approx. USD 150bn. They see this as equating to around USD 70bn that these banks will need to buy back against the other reserve currencies (esp EUR, GBP, JPY, AUD and CAD). Whilst they may well execute this over a period of time, Citi highlight that it is equivalent to financing around 2.5months of the US current account deficit, and is a material flow that would provide significant USD support. Yet another argument for the USD bulls.
Don’t be at all surprised to hear “ACB on the offer” type comments for the significant future, every time risk gets a bounce.
Options Update:
ATM VOL
EURUSD
GBPUSD
USDJPY
AUDUSD
Mid
Change %
Mid
Change %
Mid
Change %
Mid
Change %
Overnight
12.333
36.31
11.695
35.48
15.635
9.37
13.705
-2.04
1 Week
8.675
-4.04
8.460
-3.23
13.925
-7.20
11.930
-7.20
1 Month
8.395
-3.03
7.890
-2.59
13.188
-3.53
12.018
-4.77
3 Month
8.185
-3.25
7.805
-2.25
12.813
-2.34
11.660
-4.62
6 Month
8.500
-2.52
7.835
-2.79
12.478
-1.66
11.520
-2.62
1 Year
9.190
-1.71
8.130
-3.24
12.433
-1.03
11.500
-2.04
25D RR
EURUSD
GBPUSD
USDJPY
AUDUSD
Mid
Change %
Mid
Change %
Mid
Change %
Mid
Change %
Overnight
-1.165
-17.09
-0.570
25.00
0.213
-37.04
-0.690
6.76
1 Week
-0.945
4.79
-0.523
19.31
0.105
-62.50
-0.960
-4.35
1 Month
-0.845
14.21
-0.845
14.21
-0.293
-17.00
-1.578
10.37
3 Month
-1.595
3.04
-1.370
6.48
-0.510
-6.81
-2.315
8.13
6 Month
-1.915
3.04
-1.710
4.74
-0.718
-1.06
-2.945
3.92
1 Year
-2.125
2.07
-1.905
3.05
-1.253
-3.73
-3.570
2.86
Euro Morning News:
-PMI Services for Aug beats: UK 60.5 (59.7 cons); Spain 50.4 (50.0 cons); France 48.9 (47.7 cons); Germany 52.8 (52.4 cons)
-PMI Services for Aug misses: Eurozone 50.7 (51.0 cons); Italy 48.8 (49.9 cons); Sweden 53.7 (54.2 cons)
-Repubblica: Berlusconi could consider removing his support for Letta’s govt, calling for elections this year; allies suggest 24th/25th Nov as potential election dates
-IMF Paper for G20: Subdued global growth continues, near term growth drivers mainly from US; biggest risk is prolonged time of subdued growth; revising down near-term growth forecasts of Emerging economies; Global growth expected to improve next year ; US growth to improve next year, Japan subdued; Eurozone recovery expected to continue in Q3; September taper seen as possible; Germany could do more toward domestic investment to help global imbalances
-Lybian Oil Ministry’s Awami: Lybia still producing 200k bpd; Oil protest issues not been solved
-Source: Lybian crude production is at 150k bpd in the last few days (from 250k bpd last week)
-China FinMin: Local govt debt is a problem in some areas but is under control; govt revenue growth expected to increase in near-term
-Eurozone Q2 prelim GDP beats y/y: -0.5% (-0.7% cons); in line q/q at 0.3%
-Eurozone July Retail Sales lower than cons: 0.1% m/m (0.2% cons); -1.3% y/y (-0.3% cons)
-ECB’s Asmussen: ECB Supervisor should solely determine if banks are viable; Bank union is not a back door transfer union
-3m Euribor fixes in line with cons unchanged at 0.225%
-German Weak Obl Auction: Sells €4.0.4B (up to €5B range); b/c weaker, better o/b, larger tail, slightly higher retention
Overnight News
Syria:
-Senate Committee agrees of a draft resolution; would set a 60 day time limit for military action with no use of ground troops
-Sen Maj Leader Reid: confident Syria resolution will pass thru the Senate
-US General Dempsey: warns a US strike could lead to Russia increasing its military assistance to Syria
-UN’s Ban Ki-Moon: UN Sec Council must unite and take action; Confirms use of chemical weapons in Syria
-US Sec State Kerry: Syrian opposition do not have chemical weapons
-US Sec State Kerry: no intention of using US ground troops (backtracking after earlier saying he did not want to take option of ‘boots on the ground’ off the table
-Putin: Russia suspended S-300 missile system deliveries to Syria; does not rule out agreeing to Syrian action if Damascus is guilty but only with UN approval
Other:
-Bild: Germany’s Kampeter expects a Greek 2015 funding gap at €6.5B
-Sueddeutsche: German & French FinMins want tougher rules on shadow banking; want to prohibit money mkt funds from offering stable buyback prices; EC wants funds with such offers to build capital buffers
-FT: cites poll; 70% of German voters are against direct transfers within the Eurozone to
-German Election; FORSA Poll: CDU loses 1pt to 40%; FDP partner still at 5%
-Ireland: Aug PMI Services rise to 61.6 from 57.6 prior
-UK Aug BRC Shp Prices -0.5% y/y, in-line with prior month
-UK Times: majority of shadow MPC thinks BoE should keep policy unchanged in Sept; 4 of the 9 questioned the forward guidance; 2 think BoE should hike now
-World Economic Forum: Switzerland still most competitive econ; Germany & US have improved
-China: Aug HSBC PMI Services rises to 52.8 from 51.3 prior
-China President Xi: China growth slowdown is intentional to allow economic rebalancing
-Kyodo: Japan’s Abe to announce tax decision on October 2nd
-Asahi Paper: (cite sources) BoJ will think about more easing if Abe hikes sales tax as planned
-BoJ buys total Y600B in 5-10y & 10y+ buckets
-Australia Q2 GDP beats at 0.6% q/q vs 0.5% cons
-Yonhap: N Korea has made progress in nuclear program; capable of making weapons at any time