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Daily Forex Commentary
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"Hey Guys, let's vote NO and see what happens..."
Tue, Sep 30 2008, 08:50 GMT
by Jyske Bank Team
Today’s comment
Majors & Scandies
By the Majors & Scandis Team
Have the US politicians been playing parcel dice game all last week?! You can almost imagine the politicians sitting at their tables in Congress rolling the dice: “1, 2, 3, 4, or 5 the financial markets get the package, 6 they don’t”. Rolling 1- 5s (with an occational 6) all week and in the last game before the vote it was a 1-5. And then some politician who has no understanding of what is going on throws out “Hey Guys, let’s vote NO and see what happens anyway…”. As you probably have guessed, the House of the Congress failed to vote through the bill and it immediately had a negative impact on financial markets. S&P500 closed down almost 9%, the second largest fall ever, only exceeded by Black Monday in 1987. The rescue plan might cost $700B up front, some/most of which will be paid back when the toxic papers are sold back to investors in the end, but last night’s action in the market cost the shareholders more than $1,300 billion! Flight-toquality was massively seen in the market, 2-year US Treasuries rallied and the implied rate fell to below 1.66%. The same was the case with 3- month T-bills where the implied rate fell to below 0.3% - not quite as low as two weeks back, but low enough. Consequences in the FX market are more or less as expected from the fallout of the vote in Congress: carry unwinding! This means stronger yen and Swiss franc whereas Australian and New Zealand dollar weakened. It is not that hard to put a direction on the market right now – it’s down… But as we have argued a million times by now, this is not a time to throw good money after bad money. If you are highly speculative and have very deep pockets, then there might be some good opportunities in the FX market at the moment, but it is very troubling that we should be prepared for just about everything the next few days. In the last few weeks, we have seen NOK, SEK, AUD, and NZD being sold. In addition, we have seen JPY strengthening quite a bit whereas CHF-stength has not been as powerful yet. Hence, we almost have a complete picture, the only thing that we need to see now is a massively strengthening Swiss franc. At the same time, it is very hard for us to see any turnaround in the money market. It did help that the Federal Reserve more than doubled the swap lines (increased by $330B from $290B) to the other centralbanks and extended them through April 2009. The total size of the outstanding swap lines is now $620B, which includes $240B to the ECB, $30B to BoC, $80B to BoE, $120B to BOJ, $15B to Danmarks Nationalbank, $15B to Norges Bank, $30B to RBA, $30B to Sveriges Riksbank, and $60B to SNB. But in light of the disappoint political decision yesterday, the money market is likely to stay under consideral stress.
Emerging Markets
By the Emerging Markets Team
The rejection of the US rescue plan was obviously bad news for EM, which was already rattled by a string of bank failures across the US, the UK, the Euro Area - and Iceland. With the Congress being on leave until Thursday, we really see no positives ahead - and the only reason that we do not recommend selling of most of our EM-crosses is due to the fact that volatility is so elevated that it is very difficult to express directional views while at the same time protecting the downside. But let us just make clear: A neutral stance in the table below does not mean buy! In Iceland, the government finally acted and bought 75% of Glitnir - but once again, the Icelandic authorities act to late and when they had no other choice. The 5-year CDS spread on the state of Iceland thus ballooned by some 200bps, while EUR/ISK once again headed above 140. With the global backdrop taking a severe turn for the worse over the last couple of weeks and markets doubting Iceland's ability to shore up its banking sector, risks for the ISK remain clearly skewed to the downside!
Today’s Key Events
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08:00 ILO Unemployment, DEM
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09:25 ECB’s Gonzales-Paramo speaks, EUR
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10:00 Retail Sales, NOK
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10:30 GDP, GBP
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11:00 Consumer Prices, EUR
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15:00 CaseShiller House Prices, USD
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15:45 Chicago PMI, USD
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16:00 Consumer Confidence from Conference Board, USD
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18:00 ECB’s Trichet speaks, EUR
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19:00 FED’s Lockhart speaks, USD
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01:50 Tankan Report, JPY
Published on Tue, Sep 30 2008, 08:50 GMT
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How will the Plan be received?
Mon, Sep 29 2008, 06:16 GMT
by Jyske Bank Team
Today’s comment
Majors & Scandies
By the Majors & Scandis Team
The rescue plan was on Friday without doubt the dominating theme in the financial markets.
It soon became clear that the authorities would not be able to finish the plan before the weekend and it had a disappointing effect among market participants. However, on Sunday congressional leaders agreed on a draft that will allow the US Treasury to buy up to $700 billion of troubled debt securities from the banks. The plan will be sent to Congress today and hopefully President Bush will be able to approve it later on. The draft bill is entitled as the “Emergency Economic Stabilization Act of 2008” and immediately provides $250 billion, another $100 billion are available if requested by the president, and the Congress will have the authority to approve the remaining $350 billion. In return for buying up trouble securities from the banks, the US Government will receive stakes in the companies participating in the plan. Moreover, the plan seeks to limit executive compensation. The first reactions in the FX market are not all that positive. Hence, we see the low-yielders (JPY and CHF) strengthening whereas the highyielders (AUD and NZD) are under a slight pressure. Under a slight pressure are also the Scandinavian currencies and the euro. The pressure on the Scandinavian currencies can probably be related to the features of the rescue plan where the weakening of the euro is probably more related to the partial nationalization of Belgium Dutch financial group, Fortis. The Belgian, Dutch and Luxembourg governments are injecting €11.2 billion in the company and in return receive a 49% stake in the Fortis units in the respective countries. The 6th largest US Bank, Wachovia, late on Friday put itself up for emergency sale.
The bank went from being the hunter to the hunted in less than a week. How ironic is that? Hence, we are expecting yet another “interesting” day.
Emerging Markets
By the Emerging Markets Team
US politicians reached an agreement on the US rescue package but the plan still needs to be formally approved. The excitement following the package is however quite limited as markets are worrying if obstacles will occur in the further process of approving the package and whether the size of the package is going to be big enough. Another point of concern is how the financing of the package is going to affect the US economy. So what was going to be a huge relief for markets now seems to be only short lived. On top of that the financial crisis has now hit Europe again. The approval of the package can provide short term support for EM currencies but looking a few days further ahead the risk on EM currencies will still be on the down side. Looking at the local data today has rate announcement from Hungary on the agenda. Our call is for the rate to be left on hold at 8.50 % and this is in line with consensus. The rate announcement is likely to turn out to be a non-event. Focus will be on the following comments and whether these will give us hint on how close we are to cuts in the key rate are.
Today’s Key Events
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10:30 Consumer Credits, GBP
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11:00 Consumer Confidence, EUR
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14:30 Personal Income, USD
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14:30 Personal Spending, USD
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01:01 GfK Consumer Confidence, GBP
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01:30 Unemployment, JPY
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03:30 Retail Sales, AUD
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03:45 FED’s Hoening speaks, USD
Published on Mon, Sep 29 2008, 06:16 GMT
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Politicians…
Fri, Sep 26 2008, 07:00 GMT
by Jyske Bank Team
Today’s comment
Majors & Scandies
By the Majors & Scandis Team
Yesterday stock markets rose as negotiations in the US Congress on the infamous 700 bn USD bank bail out plan looked promising.
However all hope of an impending solution was lost as negotiations fell flat after a meeting in the White House between President Bush and the presidential candidates. At the meeting the Republican candidate John McCain supposedly threw his support behind an alternative suggested solution proposed by a group of conservative Republican lawmakers. Thus it seems that negotiations have turned into chaos.
To make matters worse the Seattle-based bank Washington Mutual was closed by regulators in what has already been named the biggest bank failure in US history. The bank collapsed as its credit rating was cut to junk, its stock price tumbled and customers withdrew 16.7 billion USD from their account since September 16th.
The third largest bank in the US, Morgan Stanley, said that it bought the deposits of Washington Mutual for 1.9 bn USD and that it would be business as usual on Friday morning. However there is no doubt that we are in for a rough day with a sustained pressure on credit markets and an unwinding of carry trades in the FX markets. Hence we prefer to maintain a neutral stance for the time being.
Emerging Markets
By the Emerging Markets Team
Financial markets were in a marginally positive mood yesterday as market participants were hoping for Congress to reach an agreement on the USD 700 bn. rescue package. Reports of an agreement having been reached were good news for the financial markets including EM.
But it turned out that a group of Republicans does not agree with the guidelines in the package and it still remains uncertain what the outcome will be. On top of that another US financial was in troubles and had to be taken over - JP Morgan buys Washington Mutual.
Hence what yesterday seemed to have the potential to become a positive day now seems to be yet another day with fragile markets.
Taking a look at the local stories the central banks in the Czech Republic and Romania chose to keep rates unchanged. We had expected a 25 bps cut in the Czech Republic. In spite of a weaker growth outlook and expectations of decreasing inflation, CNB chose to keep the rate unchanged because of the many uncertainties that are present in the financial markets at the moment. We still expect cuts of 50 bps in the key rate within the next 6 months. In Romania we had expected a 25 bps hike but it now seems that the central bank could be reluctant to hike further. There are no important data releases on EM today and focus will once again be directed towards the US and news on the rescue package.
Today’s Key Events
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N/A CPI from German federal states (DEM)
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10:00 Retail sales (PLN)
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10:00 Unemployment (PLN)
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12:15 ECB’ Wellink (EUR)
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14:30 GDP (USD)
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14:30 Personal consumption (USD)
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15:00 ECB’s Bini Smaghi speaks (EUR)
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16:00 Trade balance (TRY)
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19:15 ECB’s Wellink and Gonzalez- Paramo speaks (EUR)
Published on Fri, Sep 26 2008, 07:00 GMT
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The Day of Speeches
Thu, Sep 25 2008, 07:13 GMT
by Jyske Bank Team
Today’s comment
Majors & Scandies
By the Majors & Scandies Team
The Norwegian central bank kept its key policy rate at 5.75% at yesterday’s rate announcement. The decision was widely expected by the market (and us) and the projections of the key policy rate was also kept steady. The Norwegian currency has together with the Swedish been under pressure since the credit crisis escalated a few weeks back, but regained strength shortly when the central banks intervened and when the “rescue package” was put on the table. This is a logical market reaction in times of crisis as the two currencies will be viewed as too small (and thereby too risky) for the very large investors.
From this point of view, the two Scandinavian currencies remain a buy on dips until the dust settles. Otherwise, the G10 FX market was rather dull yesterday as the high-yielders traded with slightly bullish sentiment and funding traded with bearish sentiment, however, market fluctuation could have been overlooked. Today is the day of speeches since we have a gazillion (and that’s a lot) official speeches from various central bankers. The market participants will be pointing their antennas and tuning in on these speeches due to the last few weeks’ central bank activity. We are still expecting times of slightly negative sentiment as long as the details of the “rescue package” are uncertain. US politicians will be discussing the package in the media until it is voted through in Congress. Uncertainties are never creating positive sentiment in financial markets.
Emerging Markets
By the Emerging Markets Team
Markets remained fragile yesterday as everybody was waiting for news on the proposed US rescue package. The debate continued and it now seems that the 700 bn. USD will only be released little by little and that there will be a limit on how much CEOs in the financial sector can receive. Pres Bush expects to be able to present the final package on Friday and until then markets will remain fragile. Yesterday also saw room for a few local stories on EM in the form of rate announcement from Poland and CPI from Iceland. None of the events attracted much attention as focus in Iceland is rather on concerns for the health of the financial sector.
Credit spreads are still high and EURISK is still flirting with the 140 level. We remain neutral but the risk on ISK is clearly still on the downside. In Poland rates where left on hold but focus was more on the comments following the announcement and possible notes on the aim of adopting the Euro in 2012. Central bank Governor Skrzypek didn’t seem as enthusiastic as PM Tusk and said that 2012 was the first possible date for EMU entry and that it would require amendments to the Constitution. With regard to the monetary policy the MPC would not eliminate further tightening. We still expect one more hike of 25 bps. Today also has room for a few local stories with rate announcements from the Czech Republic and Romania. The former is likely to draw the most attention. CZK has seen support from renewed focus on the EU-convergence story but today’s rate announcement is likely to bring focus back to the new pace of monetary policy. Consensus is for rates to be left on hold but we see 25 bps cut as likely. If this materializes we should see some pressure on CZK. The general direction on EM will still be driven by news from the US.
Today’s Key Events
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08:10 GfK Consumer Confidence, DEM
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09:30 Producer Prices, SEK
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10:00 M3, EUR
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11:30 Producer Prices, ZAR
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14:30 Durable Goods Orders, USD
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16:00 New Home Sales, USD
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17:00 ECB’s Bini Smaghi speaks, EUR
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18:00 Bernanke testifies on Fannie Mae situation, USD
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19:00 FED’s Warsh speaks, USD
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00:45 GDP, NZD
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01:30 Consumer Prices, JPY
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01:30 FED’s Fisher speaks, USD
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01:45 ECB’s Gonzalez-Paramo and Plosser speak, EUR
Published on Thu, Sep 25 2008, 07:13 GMT
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Markets remain nervous
Wed, Sep 24 2008, 06:45 GMT
by Jyske Bank Team
Today’s comment
Majors & Scandies
By the Majors & Scandis Team
Sentiment was mainly negative on Tuesday as investors seem to worry that Congress will stonewall negotiations on the historical 700 USD plan aimed at bailing out the distressed banking system. Thus the major stock indices slid for the second day in a row, and front Eurodollar futures dropped by around 13 ticks as credit conditions tightened anew.
This morning the Fed has announced that it has established a temporary swap line with the Reserve Bank of Australia (RBA), Danmarks Nationalbank, Norges Bank and Sveriges Riksbank in order to address the liquidity issues which are currently haunting the financial markets. The swap arrangement will provide the RBA and Sveriges Riksbank with 10 bn USD each while Norges Bank and Danmarks Nationalbank are assigned 5 bn USD each.
Today focus is likely to remain on Bernanke, who speaks again this afternoon. However, turning towards Scandinavia, Norges Bank is scheduled to announce interest rates this afternoon. From a macro economic poit of view there is scope for another rate hike in Norway as inflation remains an issue. However as the crisis sweeps across the global financial markets we expect Norges Bank to leave the key rate unchanged at 5.75% this time around.
Emerging Markets
By the Emerging Markets Team
Financial markets continue to focus squarely on the eventual content of the US rescue package - and while the reaction late last week indicated that markets were sure to get the toy they have always wanted from Farther Christmas - aka Mr. Paulson - fears are now increasing that there may just be a woollen jumper under the Christmas tree. Yesterday, Bernanke gave the expected warning on the risk of delaying the package (in rather stark terms), but politicians seem to want to include restrictions on the package itself - and on the banks who are helped out by it. Today, focus continues with Bernanke slated to give two hearings: one on the economy and one on the financial crisis - but it should come as no surprise if the first touches mainly on the subject of the second. Hence, uncertainty remains high. The ZAR took a ride in the roller coaster yesterday, weakening on news that a number of ministers resigned but strengthening again on news that Finance Minister Manuel would be staying on board.
Still, yesterday's news highlights the vulnerability of the ZAR, both from the political front and from the fundamental one (inflation once again ticked higher yesterday while retail sales fell 4.6% y/y). In Iceland, we will receive inflation figures today, but focus here remains on the state of the large Icelandic banks. With credit spreads remaining high, international credit market functioning remaining impaired and the ISK forward market still in disarray, the ISK remains in the firing line - not the least because the speculation of bank rescue packages elsewhere highlights the Icelandic problem of bank size relative to the economy.
While we have reached our 140 target for EUR/ISK and we thus turn neutral on the cross for now, risks remain elevated for a further sell-off. The main event - besides Bernanke speaking again (and again) today for EM is the polish rate decision - not so much for the outcome (unchanged) but for what they have to say on recent events in the financial markets.
Today’s Key Events
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N/A Rate announcement from Poland (PLN)
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10:00 Ifo (DEM)
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11:00 CPI (ISK)
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14:00 Rate announcement from Norges Bank (NOK)
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14:45 Press conference at Norges Bank (NOK)
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16:00 Bernanke testifies before Congress (USD)
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18:00 ECB’s Stark speaks (EUR)
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20:30 Paulson and Bernanke testifies on the financial crisis before House Panel (USD)
Published on Wed, Sep 24 2008, 06:45 GMT
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The USD remains under pressure
Tue, Sep 23 2008, 06:45 GMT
by Jyske Bank Team
Today’s comment
Majors & Scandies
By the Majors & Scandis Team
Currently market participants have their attention directed firmly towards the unprecedented plan aimed at bailing out the financial sector in the US and prevent further devastating blows to the financial markets which in turn could have fatal consequences for the trembling US economy. So far it looks as though American tax payers will be picking up a bill amounting to a breathtaking 700 bn USD (at least) and as focus has turned towards the deteriorating outlook for the national budgets the USD has weakened dramatically from recent highs. In the short term we expect pressure on the US dollar will sustain. Hence a test of 148.80 on EURUSD doesn’t seem unlikely. However as the dust settles we expect that focus among investors once again will turn towards the deteriorating outlook for growth in the Euro Zone. Thus we don’t believe that the recent developments in EURUSD is a sign that we are about to take leave of the long term downtrend which has been established in recent months. Hence in the long term we stick to our 3-month target in EURUSD at 137.00 (corresponding to 544 in USDDKK)
Following the recent drop in the USD USDCAD and NZDUSD have broken out the trading intervals we have defined for the currency crosses. As we believe that the downside potential on the USD is fairly limited in the short term we have chosen to maintain a neutral stance and adjust our intervals.
There are several interesting events in the macro economic calendar today. However there is little doubt that Treasury Secretary Paulson and Fed’s Bernanke will steal the limelight as they take the stage to testify on the current credit turmoil before the Senate panel.
Emerging Markets
By the Emerging Markets Team
In general we had a quiet European session yesterday. However when the US market opened global risk appetite declined and the global equity markets ended the day much lower (Dow Jones: - 3.27 %). The same happened to EM-currencies in general. Worst performer of the day was ISK, which dropped with almost 4 per cent from the top of the day. TRY declined with 1.7 % against EUR. Following the euphoria on the markets Friday, now the investors maybe have started to look at the fundamental problems in the US-economy (increasing unemployment and lower growth – add to that now: a large fiscal burden to help the banks out of their misery). As a consequence the US-dollar once again showed weakness and dropped 2 % against the Euro.
This put pressure on MXN, but BRL could hold out and ended the day almost unchanged against the Euro. Today we expect pressure on EM-currencies in the European session and look forward to new input, when the US market opens.
Today’s Key Events
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10:00 Euro Zone PMI manufacturing (EUR)
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10:00 Euro Zone PMI service (EUR)
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10 :00 ECB’s Liikanen speaks (EUR)
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11 :00 New industrial orders (EUR)
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11 :00 Retail sales (ZAR)
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11 :30 CPI (ZAR)
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13 :00 CPI (CAD)
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16 :00 Treasury Secretary Paulson and Fed’s Bernanke testify on credit turmoil at Senate panel (USD)
Published on Tue, Sep 23 2008, 06:45 GMT
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From "It's all going to H…" to "Euphoria" in an instant
Mon, Sep 22 2008, 07:03 GMT
by Jyske Bank Team
Today’s comment
Majors & Scandies
By the Majors & Scandis Team
OMG what a week we just had. What we experienced last week will most likely be in the history books of the future. Everything was flying around in a market with extreme volatility. We saw flight to quality in a magnitude rarely seen; investors were fleeing into US Treasuries selling risky assets and an instant later the central banks or the US Government intervened and euphoria was all over the place. During the weekend, the Bush administration finalised the rescue package and sent it to Congress seeking authority to handle probably the worst crisis since the Great Depression. Details of the rescue plan are still uncertain, but we do know that the proposed package features an option to buy up to $700 billion of home and commercial mortgages and related assets from US banks. This should enable the US Government to gather all the toxic securities in one government-controlled company removing them from the balance sheets of the stressed banks. Hopefully, this will improve the trust between banks and boost the credit markets. Short selling has been banned in the US and in the UK for financial companies and in Australia the Australian Securities and Investment Commission has banned ALL short selling. We still prefer to stay on the sideline with our short-term recommendations, which means that we have only updated a few ranges in our table. Today we are leaning towards a positive day, but as we all witnessed last week, positive sentiment can vanish in an instant. The financial markets will most likely be awaiting details of the rescue package and listening to central bankers who are on the wires during the day.
Emerging Markets
By the Emerging Markets Team
Whatever else you may think of Pres. Bush Junior, he does have a refreshing way of putting things simply and clearly: when adressing the proposed rescue package he said that "This is going to be a big package because it's a big problem"! You can say that again, mr. President! While EM currencies also benefitted from Friday's huge relief rally - and could do so further in the days to come - we think that uncertainty remains huge, not the least on the exact form of the rescue package. While Mr. Paulson was asking for full power to spend the 700bn USD (to begin with), including a guarantee that his decisions could not be challenged by the courts. Politicians who are in fact handing him a blank cheque will most likely require tight controls and accountability - not the least because the money will go to help the banks that the politicians are in fact blaming for the whole mess to begin with.
Hence, the week ahead will only be about news and rumours on the rescue package, with local stories still more or less immaterial. Considering that EM currencies weathered the storm well last week, this should also leave upside limited. Hence, uncertainty rules! One position we do stick to is our short ISK position. While the credit spreads did come down slightly for two of the large Icelandic banks on Friday, one actually went higher, leaving the average higher on the day. Distrust of the Icelandic banking sector remains very high, leaving the ISK exposed.
Today’s Key Events
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09:00 ECB’s Trichet speaks, EUR
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10:00 BoE’s Gieve speaks, GBP
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14:00 Core Inflation, PLN
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14:30 Retail Sales, CAD
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17:30 FED’s Fisher speaks, USD
Published on Mon, Sep 22 2008, 07:03 GMT
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IS the Crisis over?
Fri, Sep 19 2008, 06:24 GMT
by Jyske Bank Team
Today’s comment
Majors & Scandies
By the Majors & Scandis Team
Yesterday the major central banks (FED, ECB, BOJ, BoE, BoC, and SNB) announced coordinated efforts to address the elevated pressure on the short-term US dollar funding.
The FOMC opened swap lines to the other central banks to provide dollar funding for both term and O/N liquidity (ECB: $180 billion, SNB: $27 billion, BOJ: $60 billion, BoE: $40, and BoC: $10 billion). The immediate reaction in the market was relief, but it only lasted to around closing hours in Europe. At that time markets started to turn around. Shortly thereafter, N.Y. Senator Chuck Schumer hinted that Fed officials are considering a more permanent plan to help deal with the stress in financial markets. During the Savings & loan (S&L) crisis in ’90 the Resolution Trust Corporation (RTC) was set up to remove the assets that no one trusts from the banks balance sheets. Several reports indicate that the US Government and the Treasury are working on similar arrangements (let’s for the fun of it, call it RTC part 2 – others already have). Risky assets kicked a….. when Senator Schumer hinted that something was going on – S&P and Nasdaq rose more than 5% and carry trades were again viewed as an interesting opportunity. JPY and CHF fell, but there was nowhere near the same positive effect as on stocks. The dollar rebounded versus the euro as the news about the arrangement came out and the short-term rate differential moved in favour of the greenback. In addition, Wall St. Journal is reporting that the SEC and FSA are working on banning short selling financial shares to avoid share prices crashing. And where do we go from here? The funding to RTC part 2 would have to be approved by the Congress and questions still remain of how long it will take to set up the structure. That said, there is no doubt that Hank Paulson and Bernanke will be working through the weekend in an effort to outline the plan before markets are opening in Asia Monday. At least there is at present a chance we can go on weekend without the world falling apart before we get back to work on Monday. Is the crisis over? –well how long did it take to clean up the mess from the S&L crisis? If – and we stress IF – this plan would fall apart, there is no doubt that it will be a major disappointment to financial markets…
Emerging Markets
By the Emerging Markets Team
Recently, markets have been left with the feeling that Tres. Sec. Paulson was running around with a broom, sweeping financial institutions up one by one as they dropped from the perch (or not, as it where, if he felt that they wouldn't bother others too much) but that nothing was done to address the root of the problem and to keep the remaining canaries glued to the perch. This all changed yesterday evening with the announcement of the possible public institution which would mop up bad assets of financial companies.
Hence, risky assets everywhere got a big lift on the hope that this is just what is needed to get financial markets going again. We have thus been stopped out of our short TRY and ZAR positions - but sometimes, it is actually quite nice to be wrong. Looking ahead, the key question remains whether markets have responded too kindly to the news - after all, the creation of such an entity is not without its problems - but for now, at least, we should head in to the weekend feeling much better. It is highly likely that the ISK will also benefit from this news, but as the ISK market is not yet open, we will wait and see whether our stop is hit at the open. While the ISK should get some tailwind for now, the fear of the collapse of one of the Icelandic banks is likely to be with us for some time to come, and caution is thus still warranted.
Today’s Key Events
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08:00 PPI, DEM
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08:30 Barbro Wichman-Parak speaks of the current situation, SEK
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09:00 ECB’s Stark speaks, EUR
Published on Fri, Sep 19 2008, 06:24 GMT
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Not a Positive Day in Sight
Thu, Sep 18 2008, 06:20 GMT
by Jyske Bank Team
Today’s comment
Majors & Scandies
By the Majors & Scandis Team
We were witnesses to a European session with a relatively positive undertone, however, that sentiment vanished quickly when the Americans started hitting the numbers on their keyboards. Stocks went into negative territory, JPY and CHF rebounded versus both the dollar and the euro and as did the euro versus the dollar. NASDAQ and S&P500 closed down almost 5%, which does not happen very often.
The TED spread (3-month USD Libor vs. 3- month T-bill) is at levels almost twice as high as during the EMS crisis in ’92-‘93, LTCM ’98, and the Bear Stearns situation in the spring (current level ~300bps). Credit spreads illustrated by Libor fixings vs. OIS (short interest rate swaps) have blown out – especially in USD, but GBP has also been hit. In USD, 1-week spread is currently at more that 250bps while 3-month spread it “just” close to 150bps and this should be compared with the 7-8 bps (for both spreads) before the crisis. As a consequence of the highly unusual situation in the financial markets, we have decided not to put any new recommendations on the list at present. However, to give an arrow of direction in the market for developed FX, we have widened the ranges in the side in which the currency pairs are most likely to be heading.
Hence, lots of updates in the “Majors FX space”.
Only one thing left to say – good luck and manage your positions carefully.
Emerging Markets
By the Emerging Markets Team
Fear, distrust and outright panic continues to dominate financial markets, with widespread closing of positions hitting EM currencies hard - and hitting the popular stories the hardest, simply because that's where there are most positions to close. So far, the authority response has been peicemeal and uncoordinated, and it is an understatement to say, that markets have been far from impressed. Pumping out liquidity and sweeping up the remains of failed institutions quite simply is not enough at the current juncture, and we really need something more comprehensive and coordinated. Until such a step emerges, it is hard to envisage sentiment turning around, and we thus sell both the ISK and the TRY today (we are already short the ZAR). The ISK is obviously one of the (if not the) most vulnerable currencies in times of worries over financial institutions (and the 5-year CDS spreads of the Icelandic banks hit new highs yesterday), while the TRY, one of the most popular EM stories for a long period, is vulnerable through being a crowded long.
Today's central bank meeting is unlikely to alter the fate of the TRY, which is wholly in the hands of global sentiment. Having said that, a rate cut would be the wrong signal to send, not only because inflation remains high but also due to the nervous state of the global investor.
We look for rates to be kept unchanged at 16.75%.
Today’s Key Events
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N/A ECB meeting – No Rate Announcement Scheduled, EUR
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14:00 Rate Announcement SNB, CHF
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16:00 Philly Fed, USD
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18:00 Rate Announcement Central Bank of Turkey, TRY
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00:45 Current Account Balance, NZD
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07:00 Leading Indicator, JPY
Published on Thu, Sep 18 2008, 06:20 GMT
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Fed Funds Unchanged at 2%
Wed, Sep 17 2008, 06:12 GMT
by Jyske Bank Team
Today’s comment
Majors & Scandies
By the Majors & Scandis Team
Some relief sentiment has entered the market as the U.S. Government agreed to rescue mortgage insurer American International Group (AIG) with a $85 billion loan from the Federal Reserve of New York. The U.S. Government will in return receive an 80% stake equity interest in AIG and can veto any dividend payments to common and preferred shareholders. Barclays has announced that it has agreed to buy Lehman Brothers North American investment banking and capital markets divisions (including New York headquarters). Morgan Stanley’s earnings were better than the market expected, but there is still some concerns in the market whether or not the bank is going to continue as an independent bank. The Federal Reserve kept the fed funds rate at 2% and gave thereby no gifts to the stressed financial markets. The statement acknowledged the elevated stress in financial markets and that the tight credit conditions could weigh on economic growth, but otherwise it was a relatively dull statement. There is no doubt that the financial markets have taken overnight developments positively. However, it is still way too soon say that everything is back to business as usual – well you could probably argue that we are back to business as usual as per the last 14 months.
Overall, there are still a lot of uncertainties out there and volatility is likely to remain high for the time being. That said, relief sentiment is likely to dominate (unless other bad news are going to disturb the picture) today’s session.
Emerging Markets
By the Emerging Markets Team
The FOMC disappointed some in the market by keeping rates on hold. Initially this was disappointing for the markets and equities were dropping. However during the night the US government agreed to lend as much as 85 billion dollar to AIG to save the biggest insurer in USA from collapse. By these two actions FED chairman Bernanke is betting he can use targeted emergency loans rather than another key rate cut to fight the credit crisis. Looking at Emerging markets we keep our recommendations and have the following comments:
TRY: We look forward to the interest rate meeting tomorrow. We expect the central bank to be credible and keep the key rate unchanged at 16.75 %. This should help supporting the TRY and therefore we keep our range.
PLN: Yesterday the Polish government opened talks about a timetable for euro adoption with central bankers for the first time. After the meeting Tusk told reporters that Poland should meet all euro adoption criteria in 2011 and expects a positive decision on the adoption from the European Commission. He added that a detailed timetable for the euro adoption will be ready in mid-October. This has been very positive for PLN with EURPLN dropping from 3.42 to 3.34. Of the 5 criteria, inflation is likely to be the most problematic for Poland and 2011 is in our view still very optimistic.
ISK: Locals are increasingly getting pro-Euro and pro-EU with the latest polls showing that 55 % + of people want to adopt both. The question is also getting increasingly serious among politicians. However short term EURISK will still be trading around the 131 level because of the risk aversion in global markets.
Today’s Key Events
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11:00 Eurozone Trade Balance, EUR
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12:00 CBI Industrial Trends, GBP
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14:30 Housing Starts, USD
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14:30 Building Permits, USD
Published on Wed, Sep 17 2008, 06:12 GMT
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Brace yourselves…
Tue, Sep 16 2008, 06:19 GMT
by Jyske Bank Team
Today’s comment
Majors & Scandies
By the Majors & Scandis Team
Yesterday European stock markets took a nosedive after the disturbing news of the collapse of Lehman Brothers, Bank of America’s purchase of Merrill Lynch and the problems surrounding the insurance giant AIG.
Credit spreads widened massively and the liquidity injections made by both the ECB, the BoE and the Fed seemed to do little to ease tensions. Thus in the deposit market the O/N USD rate - which traded around 2,50% as the European session was initiated - was traded around 5% as the NY session began.
In conclusion the outlook for today is rather gloomy and at this point we advise investors to lay low. However to give an indication of direction there is no doubt that we will be in for further carry unwind, i.e. a strengthening of the funding currencies (including JPY and CHF) and a weakening in high-yielders (including AUD and NZD). Furthermore further scandieweakness seems likely as investors continue to unload NOK and SEK denominated assets.
On the macro economic front all eyes will be on the Fed who is scheduled to announce interest rates at 8:15 pm. In the wake of the recent events surrounding the financial sector in the US rates have dropped massively across the curve and market participants are currently pricing in a 68% probability of a 25 bps rate cut today. Recent events certainly seem to have increased the possibility of a cut tonight.
However at this point speculation in the markets of a 50 bps cut seems exaggerated and as history has shown rate cuts have done little to resolve the confidence issues amongst players in the financial sector so far.
Emerging Markets
By the Emerging Ma rkets Team
Financial markets responded to the weekend's events as you would have expected: global equities are down some 4-5%, credit spreads soar, money markets freeze up and EM gets a hammering. Hence, no doubt that we are in for a very difficult time for EM currencies, with financial jitters reaching new highs. Focus will be mainly on whether central banks around the world will support markets by cutting rates much earlier than expected. So far, central bank reaction has been 'by the book' - page one of any central bank crisis manual reads 'Pump out liquidity', just what we saw from the FED, the ECB, the BoE and the Danish central bank (among others) yesterday. Hence, we are not getting our hopes up ahead of the FED meeting tonight. Although we have previously seen markets twisting the arm of central banks, a 50bps rate cut would leave the FED with preciously little remaining in its arsenal - and as for the ECB, recent rhetoric has certainly not been promising so we won't even go there.
Rumours of coordinated rate cuts thus seem somewhat exagerated - although such a move seems to be the best hope we have of a shortterm stabilisation of markets. This leaves markets unpleasantly exposed for the time being, and we thus continue to recommend a cautious stance. Positionwise, our short ZAR position is probably not the unwisest place to be! The FED meeting aside, focus will remain on whether other financial institutions buckle under the intense pressure, with AIG (the US insurance giant) first and foremost in people's minds. AIG is supposedly chasing 70-75bn USD in capital - a hunt which was not made easier by yesterday's downgrades from S&P and Moody's. Should AIG fail, we fear that yesterday's mayhem will look like calm markets in comparison - so we keep our fingers crossed for a benign outcome!
Today’s Key Events
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09:00 Retail sales (CZK)
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10:30 Consumer prices (GBP)
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11:00 ZEW index (DEM)
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11:00 Consumer prices (EUR)
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14:30 Consumer prices (USD)
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15:00 TIC flow (USD)
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20:15 FOMC rate announcement (USD)
Published on Tue, Sep 16 2008, 06:19 GMT
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"MINE, YOURS, MINE, YOURS, YOURS…"
Mon, Sep 15 2008, 07:17 GMT
by Jyske Bank Team
Today’s comment
Majors & Scandies
By the Majors & Scandis Team
All weekend the Federal Reserve and the SEC have been working with a team of the largest banks in the world in an effort to resolve the Lehman Brothers situation. The two most likely bidders, Bank of America and Barclays, walked away this morning and Lehman has officially filed for Chapter 11 bankruptcy. Lots of sellers in the market but no buyers…However, Bank of America did not walk away without purchasing something as the bank bought Merrill Lynch for $50 billion. In light of the recent developments in the US financial sector, the Federal Reserve has extended its existing liquidity facilities, PDCF and TSLF, to include among other things investment-grade corporate securities. Hmmm the Federal Reserve is now accepting equities as eligible collateral – that can’t be good… But it does show how desperate the Federal Reserve is becoming as the financial crisis is escalating. In order to help preventing a meltdown of the financial system, ten of the largest banks (Bank of America, Barclays, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Merrill Lynch, Morgan Stanley, and UBS) have committed to a $70 billion borrowing facility ($7 billion each).
The FX and short-term interest rate markets have been flying around all night. We are expecting a volatile session today with riskaversion dominating the picture. This means that we will most likely see CHF and JPY strengthening (most versus USD) and AUD and NZD weaken (most versus EUR). The US dollar is expected to be under pressure versus the euro as it is currently the US financial sector that is the centre of attention. Short-term interest rates have fallen massively during the night with US rates being down more that 35bps(!) and European rates “just” 23-25bps.
And ohh by the way, we have adjusted a few of our FX trading ranges…
Emerging Markets
By the Emerging Markets Team
Uncertainty regarding the future for Lehman continued to dominate markets Friday. An increase in EURUSD and continued focus on the EU-convergence story provided support to the Central- and Eastern European currencies while USD-related currencies incurred losses.
In South Africa there was news on the political front as the court declared the corruption charges against the (most likely) coming president Zuma invalid. This ruling should be positive for political stability in South Africa but new corruption charges against Zuma can not be eliminated. This morning continued worries for the US financial sector has lead to a further rise in risk aversion. Markets are very nervous and all EM currencies are suffering and will still be very sensitive to news from the US financial sector. Today we will most likely not see the differentiation between EUR-related and USD-related currencies that have been present the past few months as the entire class of EM currencies will suffer.
On the data front this week kicks off with August CPI from Poland. Last week was quite turbulent for PLN as the currency at the start of the week continued its new declining path but then saw good support from a comment from PM Tusk that Euro adoption should be possible in 2011. We do not think this support will continue as PLN will be negatively influenced by a deteriorating growth outlook for the Eurozone, the interest rate soon having peaked, and stronger USD/weaker EUR.
Today’s Key Events
- 09:00 Unemployment, TRY
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10:00 Trade Balance, NOK
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11:00 ECB’s Trichet speaks, EUR
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14:00 ECB’s Tumpel-Gugerall speaks, EUR
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14:00 Consumer Prices, PLN
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14:30 Empire State Index, USD
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15:15 Industrial Production, USD
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03:30 RBA Minutes, AUD
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07:00 Consumer Confidence, JPY
Published on Mon, Sep 15 2008, 07:17 GMT
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Do I hear a bid for Lehman?
Fri, Sep 12 2008, 06:37 GMT
by Jyske Bank Team
Today’s comment
Majors & Scandies
By the Majors & Scandis Team
Worries about the health of the financial sector in general and troubled US bank Lehman Brothers in particular dominated market sentiment on Thurdays. Stocks and interest rates fell for most of the day before making a remarkble turnaround late last night on market rumours that US authorities and the Federal Reserve are involed in a possible sale of Lehman to one or several US banks. Apparently the deal is planned to be announced before the start of next week in an effort to calm markets down.
The Lehman story will be in focus today and might keep financial markets in a wait-and-see mode though still nervous and edgy.
Overnight both the JPY and the CHF has weakened slightly from yestday’s hight as the prospects of an end to the Lehman crisis has reduced risk aversions, at least for the time being. With markets so focused and driven by rumors expect volatility to remain high.
The USD also weakend overnight. One reason was a another rumors circling the markets yesterday about a possible rate cut by the US Federal Reserve at next week’s meeting. In view of last Friday’s weak US job report and recent lower oil prices, which have improved the outlook for inflation, markets have started to speculate about the chances of another US rate cut. Short term US rates fell yesterday and at the moment markets price in a 10-12 % chance of a 25 bp hike next week and roughly at 35 % chance of a cut before the end of the year.We doubt the Fed will cut as early as next week but still look for a cut before the turn of the year.
Emerging Markets
By the Emerging Markets Team
The fate and woes of Lehman Brothers continue to drive financial markets. After a bit of panic yesterday (where the CDS spreads on Lehman spiked to almost 800bps), markets thus calmed down as speculation of a possible buyer intensified (Bank of America has been mentioned), as did speculation that the US authorities are once again involved in bailing out the market. Lehman's CDS spread thus ended the day lower at around 540bps. EM also benefitted from calmer markets, although currencies like the ZAR and the TRY still ended the day down against the EUR. The EM calendar is practically empty today, and although the US does give us producer prices and retail sales, we think focus will remain squarely on the a possible resolution of the Lehman situation.
Any news of a prospective deal could be just what is needed to stabilise markets in the short run. Perhaps Hank Paulson will be the man to save the markets for the second consecutive weekend - but in a wider perspective, a solution without government involvement would obviously be preferable. Positionwise, we stick to our long EUR/ZAR position, although we have moved the stop up to the entry level. A Lehman take-over would most likely lift EM across the board - and hence also the ZAR, however much we dislike the fundamentals.
Today’s Key Events
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N/A Svein Gjedrem speaks, Norway
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11:00 Industrial production, Eurozone
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14:30 Producer prices, US
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14:30 Retail sales, US
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16:00 U of Michigan Confidence, US
Published on Fri, Sep 12 2008, 06:37 GMT
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FX − When the going gets tough ……..
Thu, Sep 11 2008, 07:04 GMT
by Jyske Bank Team
Today’s comment
Majors & Scandies
By the Majors & Scandis Team
The tough get going. The fx market is for sure no kids game any more. The dollar keeps brushing all other currencies aside without looking in the rear view mirror. EUR/USD managed overnight to break through the psychological threshold at 140 triggering another bout of stop loss orders in the market. The next major support area will be coming in between 138.00 - 138.40. Risk aversion is therefore thrieving in general. Consequently, EUR/JPY has been diving below the very important support at 150 thereby dragging EUR/CHF down as well. The area to watch in EUR/JPY will be 149.25 the low from last autumn when the credit crisis broke loose. The corresponding level in EUR/CHF will be 158.20 briefly touched last week.
The AUD and NZD keep getting hammered in the wake of the dropping commodity prices and not least the strengthening of the yen. RNBZ apparently felt the heat so much that they decided to lower interest rates by 50 bps at their monetary meeting overnight. Expect further losses for both currencies. In general hopes are high that the fx market soon will be bound for a major correction. Problem is from which levels. The knives keep falling all over the place and it is starting to get really bloody.
Emerging Markets
By the Emerging Markets Team
EM: Fleeting markets
Market focus continues to change quicker than Denmark can turn around a World Cup Qualifier: While the week startet off with everything being about Freddie and Fannie, these were almost forgotten yesterday, with all focus turning to the premature publication of Lehman's results. While losses were double what analysts had expected (and reached 6.7bn USD over the last 6 months), market reaction was actually relatively subdued. Perhaps markets had feared worse - or perhaps there is a feeling that, no matter what, the authorities will bail out what needs to be bailed out. In any event, focus will remain on whether Lehman manages to sell off selected tit-bits of its business to ensure continued survival. The publication of such a deal could lift financial markets - its absence will do the opposite. Positionwise, we have closed our short EUR/TRY position as the cross traded briefly above our stop of 1.75 yesterday, booking a solid profit of some 5% (carry included). This leaves us short ZAR, which we feel comfortable with as markets remain highly nervous. Today, focus will centre on the Sedlabanki rate decision. Despite inflation running some 10 percentage points above the target band, signals from the Sedlabanki have been somewhat mixed and some market participants are looking for an early start to the rate cut cycle today. We hope this does not materialise as it would, in our view, constitute a policy error and leave the ISK even more vulnerable. The decision illustrates the dilemma of many EM central banks at the moment - with the fear that they will let growth concerns overrule inflation targets. We hold our thumbs and pray for a bit of central bank prudence!
Today’s Key Events
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09:00 CPI, Hungary
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11:00 Interest rate decision, Iceland
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11:00 GDP, 2. quarter, Iceland.
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14:30 Jobless claims, USA
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20:00 ECB’s Trichet speaks.
Published on Thu, Sep 11 2008, 07:04 GMT
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Another day in the FX rollercoaster
Wed, Sep 10 2008, 07:11 GMT
by Jyske Bank Team
Today’s comment
Majors & Scandies
By the Majors & Scandis Team
Once again yesterday turned out to be a bumpy ride in the rollercoaster, with especially EUR/USD, EUR/CHF and EUR/JPY showing extremely high intraday volatility. Whether you like it or not the latest strong downtrend in EUR/USD seems unable to loose momentum and the dollar continues to climb higher against all currencies. The psychological support level at 140 in EUR/USD seems within reach and a coming test seems very likely. As for risk aversion market participants are still on high alert bringing both EUR/JPY and EUR/CHF under pressure. In EUR/JPY the big level to watch is 150, acting as well as a big psychological level. Overnight further concerns emerged about the liquidity in the US banking system bringing the US equities under large pressure and thereby adding further fuel to the present burning risk aversion fire. Glancing at the Scandinavian currencies, NOK and SEK, they as well have been victims in the ongoing nervousness, and both EUR/NOK and EUR/SEK are flirting with important levels. Key data out of Norway and Sweden to watch today are Norwegian August CPI and Swedish industrial production.
Worth mentioning is that the oil prices declined about 3 % in New York trading on the back of OPEC, bringing Brent Crude oil below USD 100 for the first time since April. Watch out – the ride is far from over!
Emerging Markets
By the Emerging Markets Team
Markets didn’t take long to turn around again
It did not take long for markets to turn around from the euphoria following President Bush’s rescue plan. Negative stock markets in Europe and the US yesterday dragged EM along and almost all EM currencies ended the day weaker against EUR. Once again ISK was the clear underperformer and we are slowly approaching 130 in EURISK, hence the cross has broken through the upper limit of our interval. For now putting a direction on EURISK seems to be a 50-50 bet. For now we maintain a neutral stance and adjust the interval. It will be interesting to see if Sedlabanki has any reactions on the monetary policy meeting tomorrow. For now we expect the rate to be left on hold at 15.50 %, but a hike would provide much needed support to the currency. Yesterday’s outperformers were the Central- and Eastern European currencies but only marginally firmer. In Turkey the central bank released its bi-weekly inflation expectations survey which showed decent drops in both expectations for end 2008 and 12 months ahead. This could provide support to the recent more dovish stance by the CBRT, but we still think that cuts in the key rate will only be a reality some time in to 2009. Today Q2 GDP is released and a number lower than expected could push to market speculations that cuts in the key rate are not too far away. Asian stock markets are in negative territory this morning and it seems that we could be up for another day of EM underperformance.
Today’s Key Events
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09:00 ECB’s Trichet speaks
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09:00 CPI, Romania
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09:00 Q2 GDP, Turkey
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10:00 CPI, Norway
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13:00 MBA Mortage Applications, US
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14:00 Q2 GDP, Brazil
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23:00 Rate announcement, New Zealand
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23:00 Rate announcement, Brazil
Published on Wed, Sep 10 2008, 07:11 GMT
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Extreme fx−race
Tue, Sep 9 2008, 06:59 GMT
by Jyske Bank Team
Today’s comment
Majors & Scandies
By the Majors & Scandis Team
Although I have been in the fx-business for many year I'll have to admit that the recent huge waves of volatility in the fx-market are astonishing. The dollar keeps on climbing higher and higher despite major financial events like the Treasury's bail out of Fannie Mae and Freddie Mac over the weekend. After a first jump higher the EUR/USD quickly sobered up and returned to the vehement new downtrend dragging EUR/USD to new lows not seen for many months. Consequently, the dollar is blowing all other currencies aside and is now approaching tough psychological support at 140 thereby making the remaining dollar bears bleed heavily. Whether or not enough blood is flowing still remains the question. Trying to go against the forceful dollar uptrend right now is like catching a falling knife - it is best left undone. A bunch of market participants are still waiting to buy cheaper dollars after having been forced to acknowledge the new existence of the dollar uptrend therefore the longed for correction of EUR/USD will not be as impressive as most traders are hoping for. The dollar is back in vogue. And so is risk aversion. Especially the yen is rising again forcefully taking the CHF along too. A break of 150 in EUR/JPY will fuel another rise in fx-volatility. Better be prepared. The fx-race is on and it is EXTREME.
Emerging Markets
By the Emerging Markets Team
When do the markets calm down?
Monday the market was in a state of euphoria. Especially equity markets were performing brilliantly following President Bush’s decision to rescue Fannie Mae and Freddie Mac. On emerging markets almost every single currency gained against EUR. The Turkish Lira and the South African rand gained about 2 %. This was much needed following last weeks poor performance in general. President Bush’s decision was not a big surprise; however you will always see a kind of relief when the decision is taken. However we now expect the market to calm down and therefore it is likely we will see the EM currencies to underperform in the coming days. We therefore move our stop profit in EURTRY from 1.78 to 1.75.
After initially weakening against euro following President Bush’s decision, the dollar again has started gaining against the euro and during the night we have traded at the lowest level in EURUSD for about a year. This is fully in line with our general recommendation where we are buying dollar related currencies against the euro related currencies.
Finally a short comment to ISK. Even yesterday ISK could not perform against the euro. ISK is following the same trend as it has done for about three months. In positive market sentiment it cannot keep up with other high yielding currencies and in negative market sentiment it looses more than the other high yielding currencies. A rate hike on the September 11 meeting could help ISK short term. However judged by the comments from the central bank it is likely the key rate will stay unchanged at 15.50 at the meeting.
Today’s Key Events
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11:00. ECB’s Weber speaks.
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15:00. FED’s Bernanke speaks
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16:00. Pending home sales, USA.
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16:00. CPI, Mexico.
Published on Tue, Sep 9 2008, 06:59 GMT
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US Treasury and the Fed saved the World…
Mon, Sep 8 2008, 06:26 GMT
by Jyske Bank Team
Today’s comment
Majors & Scandies
By the Majors & Scandis Team
And so the U.S. Treasury and the Federal Reserve managed to save the world once again. This Sunday they announced a bailout of the two mortgage giants Fannie Mae and Freddie Mac, which own or guarantee almost half of the entire $12 trillion in outstanding mortgage debt in the US. Treasury Secretary Henry Paulson and FHFA Director James Lockhart argued that the US economy and the financial markets will not recover until the housing correction is in the past. In addition, Paulson and Lockhart argued that Fannie and Freddie are two special cases and it would be devastating to the economy if they were not kept floating. There is no doubt that this will be viewed positive by the market and positive for FX carry in the short-term. Even though we argued that EURCHF would reach sub-155 levels just a few days ago, the actions taken by the U.S. Treasury and the Federal Reserve changes this picture quite drastically. A lot of the risk-aversion we have witnessed in the last two weeks will most likely fade in the shortterm and this will prove positive for highyielders (AUD, NZD) and the funding currencies (CHF and JPY) will be sold once again. Overall, this will by the market be viewed as positive for growth, not just in the US, but indeed in the world as well. In the short-term our commodity analysts expect that commodities will receive a boost and this will not be all that positive to the US trade balance and hence the dollar. The euro is expected to gain versus the dollar on the renewed growth optimism, which means that we in the short-term expect EURUSD to edge higher. However, we cannot stop asking ourselves the following question: “How positive can it actually be when it is that bad that the only solution to save the financial sector in the US (and in the world?) is a government bailout?”. Hmmmm…
Emerging Markets
By the Emerging Markets Team
President Bush decision to save Fannie Mae and Freddie Mac has been very positive towards the Asian equity markets and risk appetite in general. Therefore the decision should also be positive for emerging markets short term. Looking at FX the decision has been negative for dollar against euro. Thus dollar related currencies as BRL, ARS, and MXN after 1½ months with gains now experience a negative day. On the other hand euro related currencies as HUF, PLN and RON are gaining.
However we still like the dollar related currencies more than the euro related currencies. We are considering opening a position in ISK (buying ISK) and considering closing our position in ZAR (selling ZAR) because of the credit friendly decision from President Bush. However we keep our positions today, because we forecast the positive sentiment to calm a little bit down. This week we look forward to a lot of important data from EM. Today we start with CPI from the Czech Republic 9 am.
Today’s Key Events
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09:00 Consumer Prices, CZK
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10:30 Producer Prices, GBP
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13:00 ECB’s Stark speaks, EUR
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16:30 ECB’s Tumpel-Gugerell speaks, EUR
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21:00 Consumer Credits, USD
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01:00 ECB’s Gonzalez-Paramo speaks, EUR
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01:01 RICS House Prices Balance, GBP
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03:30 Retail Sales, AUD
Published on Mon, Sep 8 2008, 06:26 GMT
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Wake−up Call!
Fri, Sep 5 2008, 06:36 GMT
by Jyske Bank Team
Today’s comment
Majors & Scandies
By the Majors & Scandis Team
Hey guys! –this is a wake-up call to all of you who think this looks like attractive levels to obtain further FX funding. Take a look at what is going on at the moment:
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Virtually all stock indices in the world fell by 3% yesterday. How often does that happen?
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EURJPY was down by almost six (6!) figures yesterday. How often does that happen?
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EURCHF has left the building! –meaning that it has left the safe-old territory of levels above 160 (466 vs. DKK). This can very well mean that we are facing sub- 155 levels in the near-term.
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AUD and NZD have fallen almost 2% during the night. NZD is currently trading below daily close of August last year.
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S&P 500 closed below 1250 yesterday.
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Do you really think this is over??? – the Fed is not able to cut rates by 75bps this time and save the world once again.
2x unchanged and 1x hike were the results of yesterday’s rate announcements from the ECB, the BoE, and the Riksbank. The European Central Bank and the Bank of England both kept the key rates unchanged while the Swedish central bank, the Riksbank, raised rates by 25bps. The outcomes for the ECB and the BoE were widely expected by the market while economists were more split in the Riksbank case. In addition to raising rates, the Riksbank lowered the repo rate path, which leads us to suspect that it is the last hike in this cycle. Our economists are expecting cuts in Q2 and Q3 ’09 due to the darkened growth outlook. EURSEK fell initially, but bounced back quite quickly reaching intraday highs 951.07.
However, the pair is trading around the same levels as before the rate announcement. Mr. Trichet did not signal cuts in the near-term and kept the inflation focus, which meant upwards adjustments to the inflation forecasts for both 2008 and 2009. We have reached our short-term target on the dollar and even though it is indeed likely that the dollar is going to reach higher levels, we prefer to take profit and stand by while other parties are fighting in the market. Hence, no new recommendation for now. The irrational behaviour in the financial markets at the moment also means that we take our profit in our long JPY position. JPY and CHF are aiming for higher levels, but as mentioned before we prefer to let others fight the battles in the market at the moment.
Emerging Markets
By the Emerging Markets Team
Yesterday, the sell-off in EM currencies continued, with the likes of the ZAR and the TRY losing another per cent against the EUR. But this time round, EM was in better company: the global sentiment has taken a clear turn for the worse, with global stocks e.g. selling off some 3%! On this background, it is more understandable - and less disconcerting - that EM comes under pressure. Once again, however, we lack a clear catalyst for the sell-off. True, the ECB did not lend much of a helping hand (and a down-shift of the growth forecast and the opposite for the inflation forecast clearly smells like something rotten), and true, initial jobless claims did disappoint on the upside (hinting at worse NFP's to come), but none of these events should in themselves be too cataclysmic for financial markets. Maybe markets are realising that a more severe growth downturn is looming ahead, as we have warned for some time. Hence, while our longer term views remain unchanged, we seem to be heading into rough waters. Positionwise, we stick to long TRY/short ZAR and argue that now is not the time to take on additional risk. Now is not the time to forget what childhood painfully taught us: some things are best not done against the wind!
Today’s Key Events
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08:50 ECB’s Trichet, Stark, Bini Smaghi speak, EUR
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09:00 PPI, CZK
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10:00 Industrial Production, NOK
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12:00 Industrial Production, DEM
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12:30 Gonzalez-Paramo speaks, EUR
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14:30 Non-farm Payrolls, USD
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21:55 Fed’s Yellen speaks, USD
Published on Fri, Sep 5 2008, 06:36 GMT
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Three interest rate meetings today!
Thu, Sep 4 2008, 06:44 GMT
by Jyske Bank Team
Today’s comment
Majors & Scandies
By the Majors & Scandis Team
One down - three to go
The first central bank to leave rates unchanged this week was Bank of Canada on Tuesday. USD/CAD was dragged to a one year high at 107.77 but as the meeting got closer participants lost their nerve and sent the currency pair lower again. Immediately after the BoC-non-event CAD strengthened even further out of pure disappointment.
The first central bank on the scene today will be Riksbanken, whose decision is probably the most twisted. SEK is slip slip sliding these days and should Riksbanken present a rate cut the cross is expected to test the previous high above 950. Good support is coming in around 943.50 -944.00 should he on the other side keep an unchanged stance.
The second central bank today is BoE. We do not expect any cut which is market consensus, as Mr. King is still caught between a rock and a hard place - namely a too high inflation and falling growth. GBP continues sliding down a slippery slope. Yesterday EUR/GBP reached a new 12 year high at 81.73 and GBP/USD touched a new 2 year low. Although the recent spike has been rather extreme we cannot exclude a coming test of the next major resistance at 83.00. For now good support is coming in around 81.20 and subsequently 80.80.
The last central bank to enter the stage is ECB this afternoon. We do not expect any surprises today, though the following press conference will be scrutinized thoroughly once again as rumours are surfacing about a coming tightening of its lending criteria. History tells us that EUR/USD is probably going to be very volatile up till and probably also after the ECB meeting and the press conference. For now EUR/USD is well supported below 144 and good resistance is supposed to come in at the previous important 145.70.
Emerging Markets
By the Emerging Markets Team
EM: Unpleasant memories - hold your horses
Yesterday brought a veritable bloodbath for EM currencies, with high-yielders ISK, ZAR and TRY all l