Asia caught in a hefty long-JPY squeeze without any relevant headlines


MAJOR HEADLINES – PREVIOUS SESSION

  • CA May Retail Sales out at +1.2% m/m vs. +0.5% expected and revised -0.6% prior

  • CA May Retail Sales ex-Autos out at +0.7% mm/ vs. +0.5% expected and -0.5% prior

  • US May House Price Index out at +0.9% m/m vs. -0.2% expected and revised -0.3% prior

  • JP Jun. Trade Balance out at +Y508b vs. +Y610b expected and revised +Y298.2b prior

  • JP Jun. Trade Exports out at -35.7% y/y vs. -35.1% expected and -40.9% prior

  • JP Jun. Trade Imports out at -41.9% y/y, as expected and vs. -42.4% prior

  • SI Jun. CPI out at -0.5% y/y vs. -0.6% expected and -0.3% prior


THEMES TO WATCH – UPCOMING SESSION

  • AU RBA’s Debelle speaks (0700)

  • Denmark Consumer Confidence (0730)

  • Sweden Unemployment (0730)

  • EU Euro-zone c/a balance (0800)

  • UK Retail sales (0830)

  • US Initial Jobless Claims (1230)

  • US Fed’s Tarullo testifies (1330)

  • US Existing Home Sales (1400)

  • CA BOC Monetary Policy report (1515)

  • US Fed’s Fisher speaks (1720)

Market Comments:

It was a volatile session across in the US last night with equity markets once again driving sentiment in FX-land.
Early weakness was seen as the first earnings reports disappointed and hence risk aversion pushed currencies down to the lower end of Asian ranges but a rebound saw the upper side tested again before settling back at levels when Asia left. Generally a mixed session on Wall St with most indices flat but the Nasdaq higher following strong results from Apple.

On the data front, US mortgage applications were a touch higher, the house price index beat forecasts with a 0.9% jump compared with a 0.1% fall last, Canadian retail sales were very strong at +1.2% m/m while the BOE minutes hinted that the end of QE measures may be in sight. The UK CBI survey showed optimism at its highest level for some time even though factory orders fell to their lowest levels since 1992. The second day of Bernanke’s testimony produced nothing new though bond markets gave back some of yesterday’s gains resulting in a 5bp bounce in 10-year yields.

CAD was one of the star performers overnight after the strong retail sales numbers. A firmer oil price also helped the Loonie power ahead against the dollar and USDCAD slid to the 1.0950 level again. However, caution ahead of tonight monetary policy report from the BOC, and the risk that references to CAD strength may adopt a harsher tone to those immediately following the meeting, saw USDCAD back above 1.10 in Asia.

Asia was settling down for another day of range trading but was caught off guard when a hefty long-JPY squeeze developed, which left many scratching their heads. Attempting to fit the moves to corporate flows, news and option-related trades was the major task, and proved fruitless, with no corresponding changes in Asian bourse levels spotted at the time, nor later. Nevertheless, JPY-crosses remained well-bid into the Asian lunch and beyond.

Elsewhere in Asia, comments from NZ authorities provided some interest, and also some confusion. Initially, finance minister English said that foreign investment rules would be relaxed to speed up their processing and encourage more investors (seen as a NZD positive) In the next breath he said that NZ needed a weaker currency to promote export growth (back to square-one). English added that the economy was under considerable stress from a decade of imbalanced growth and needed more savings and less consumption to shake off the recession, which could be felt for years to come. (Certainly not positive). However, NZD was caught up in all the cross-JPY buying and finished the Asian session higher.

Japan's trade surplus widened out to an unadjusted Y508.0 bln in June, registering a huge 388% increase from a year earlier. It was the 5th surplus in a row and exports rose by a solid 1.1% m/m after a 0.3% dip prior, while imports fell by an ongoing 2.2% m/m. The breakdown showed that declines in exports to the US, EU and China, though still deep in the double digit region, had all fallen by a slower pace and most notably to the US. However the data failed to excite at the time, other influences mentioned above gave more of a spark to trading.

Looking ahead to later, UK retail sales and EU current account balance are the only major economic events on the horizon. Weekly US jobless claims are expected to show a rebound higher to 557k after the last 3 weeks of lower numbers (quite rightly discounted as seasonally-influenced). Existing home sales finish off the US slate while all eyes in Canada on the BOC monetary policy report. The 955-956 level will be heavily monitored on the S&P for technical double-top formations and talk of bearish divergence on momentum indicators should increase the air of caution today. Keep it tight.