SYDNEY, Feb 4 (IFR) - Headlines from Monday Night * US Markit Mfg PMI Final Jan 53.7, 53.7-prev * US Construction spending mm Dec 0.10%, f/c 0.20%, 0.80%-prev * US ISM Mfg PMI Jan 51.3, f/c 56, 56.5-prev * US ISM Mfg prices paid Jan 60.5, f/c 54, 53.5-prev * US ISM Mfg employment idx Jan 52.3, f/c 55.8, 55.8-prev * US ISM Mfg new orders idx Jan 51.2, 64.4-prev * US Treasury's Lew Administration would exhaust extraordinary measures by end of Feb if debt ceiling not raised * Bank of Italy's Visco says revaluation of Italian Banks' stakes could boost their core capital from 2015; BOI will only buy stakes exceeding 3% after 3yr transitional period * ECB to finish bank-by-bank portfolio selection for AQR in mid-Feb, methodology to be finalized in coming weeks * ECB's Constancio says banks are front loading preparations for comprehensive assessment; capital shortfall can be dealt with over extended period * IMF sees bank of Canada raising rates in early 2015, Canadian housing market has cooled but prices still 10% over-valued * CA Producer prices mm Dec 0.70%, f/c 0.30%, 0.20%-prev * CA Producer prices yy Dec 1.40%, 0.30%-prev * CA RBC Mfg PMI SA Jan 51.7, 53.5-prev * BR HSBC manufacturing PMI Jan 50.8, 50.5-prev * Reuters Poll ECB will leave refi/depo on hold this week - majority of traders * Ben Bernanke to join US think-tank Brookings * DE Jan Mfg PMI 56.5 vs 56.3 prev, 56.3 exp * EZ Jan Mfg PMI 54.0 vs 53.9 prev, 53.9 exp * UK Jan Mfg PMI 56.7 vs 57.3 prev, 57.0 exp * London house mkt shows new bubble signs E&Y/ITEM Club * SNB Danthine, only consider scrap 1.20 fl if CPI much higher Themes from Monday * As one of prime broker wrote in a commentary last week "the risk-off investor sentiment remains entrenched for now and is being reflected not just in emerging asset markets and currencies but also developed markets." This theme continued on Monday. * Crumbling stocks and US Treasury yields plus JPY strength - the hallmarks of "risk off" trading - were the main talking points overnight. Whilst (very) soft US ISM data is getting most of the blame - this is not just a one-off piece of bad data. December's soft payrolls print got the ball rolling with those thinking that data was just too bad to be true, now having a serious re-think. Friday's January print is now all encompassing - those blaming the bad weather are garnishing less and less support. * Let's face facts - consensus trades for 2014 are being unwound. The consensus trade to end all consensus trades - long equities/short bonds - is being reversed and whilst many have already hit the escape button - the vast majority have not. Emerging market weakness has quietly morphed into developed market weakness. * Weak China growth concerns (and thus emerging market growth concerns) are being overrun once by developed markets growth concerns. Many now are expecting the ECB to cut on Thursday (the EONIA rate certainly supports this view) and the US payroll number to disappoint on Friday thus pulling the plug on those calling Decembers print a statistical anomaly. * Time will tell of course but for now unwinding of "conviction" trades looks likely to continue in the near term. * USD/JPY broke its ultra strong correlation with the Nikkei during the Asian session on importer US Dollar demand but it did not last long. Europe immediately put USD/JPY under pressure with the leveraged brigade doing most of the damage. Purported semi official support at 101.80/85 eventually gave way opening the way for a concerted push lower. The stops (and sell stops) around 101.70 (below last Mondays low of 101.77) were extinguished. There was no joy initially with USD/JPY recovering from 101.67 back to 102.15 in a real pain trade before USD/JPY ticked lower once more. USD/JPY dealt down to 101.69 before plunging lower on the ultra soft ISM data. USD/JPY settled just ahead of 101 before plunging again mid afternoon in NY as stocks (incl Nikkei) swooned. USD/JPY dealt down to 100.77 - last at 100.85. * EUR/USD proved to be a washing machine for flow activity and US Dollar weakness. Following two days (Thurs/Fri) of heavy EUR selling, the downside in EUR/USD proved resilient on Monday. The single currency bottomed out at 1.3477 in London only to rally above 1.3530 in NY. There were lots of smaller moves in between with the run of solid European PMI's pushed somewhat into insignificance as the night progressed. EUR/JPY down around 1.0% at one stage to 136.37 whilst EUR/GBP rallied 1.1% to over 0.8300 at one stage as long GBP positions were unceremoniously dumped. Soft UK PMI data got the ball rolling but GBP longs were caught up in the stock market/risk rout and forced out. * AUD/USD got squeezed higher in early London rallying as high as 0.8834. Topside stops (including AUD/NZD) and a large option expiry (0.8820) were the reasons given (plus square up ahead of RBA) but the move did not last long. Sellers above 0.8830 (and 1.0880 in AUD/NZD) were plentiful and quickly capped the topside once the weak stops were extinguished. AUD/USD held just above 88 cents until the ISM release. AUD/USD did not collapsed but edged lower back to Fridays NY closing level of 0.8750. Positioning in AUD/USD (as highlighted by last week's CFTC data) remains extended hence AUD/USD held its own in a general "risk-off" environment. * USD/CAD witnessed another shake out of (USD) longs in the wake of the likely approval of the Keystone pipeline. USD/CAD fell from around 1.1130 to a low of 1.1041 prior to the US ISM release. The soft ISM data took USD/CAD back to 1.1100 with leveraged players noted buyers on the way down and on the way up. The CAD moves of Friday and Monday have shown up in startling fashion on some crosses. In particular GBP/CAD has gone from nearly 1.85 on Friday to nearly 1.80 today. The move above 1.85 last week looks exhaustive with a deeper correction to now unfold. * Wall Street started the session down (Dow 40, S&P 5) but it was the soft ISM data that got the ball rolling. The ISM data was a bolt from the blue with no one expecting such a big miss - (51.3% f'cast 56.0%). Payroll forecasts were immediately marked lower with some cutting their numbers by 50%. Equity weakness continued throughout the NY session picking up momentum mid afternoon with the NASDAQ finishing the day in triple figures down territory. The Dow closed down 2.1% (and in the process posted its 7th triple digit drop in 2014); S&P 2.3% and NASDAQ 2.6%. * European equities started the day in the black but quickly moved into the red. China's soft PMI data (although smack on consensus) was the reason given but it was the US ISM data that did most of the damage. The pan-European FTSEurofirst 300 index ended down 1.4%. The euro zone's blue-chip Euro STOXX 50 index fell, by 1.7%. Uncertainty over the near-term outlook drove the Euro STOXX 50 Volatility Index up 10%. The index has gained about 57% since Jan. 21, reflecting fears about a slump in emerging markets over the last two weeks. * Spot gold rose more than 1.0% to 1266 an ounce (at one stage) as risk aversion strikes global markets. Spot gold last at 1258. Copper fell to a 2-month low of 7025 a tonne at one stage - last at 7038. Oil prices were not immune - Nymex crude down 1.1% at settlement. * US Treasury yields collapse in response to the soft ISM data - 10-yrs down 7bps to 2.58% from 2.65% on Friday. * The VIX rallying 17% to 21.50. Wrap-up * The emerging market rout has now morphed into something more sinister. Developed markets have been caught up with a run of soft US data the trigger. Last night it was the ISM data which was too bad to be believed. Two per cent stock losses get everyone's attention with Friday's payroll number now elevated to an absolute critical release on Friday. As discussed in the themes this is not just about data - it is about positioning. Bad positioning that no longer fits the economic landscape. Long "stocks" in a slow growth environment where the Fed is pulling back on stimulus no longer fits the bill. * Watch the Nikkei today - futures down over 2.0% or 350 pips last. Players are hitting the exit button on conviction trades. USD/JPY looks headed for levels back below 100 and in a hurry. Price keeping operations might not be enough to stop the rot. Nikkei losses are now over 10% for 2014 thus in bear territory. * Today's RBA meeting is unlikely to be a market mover but there is some looking for the central bank to ditch its easing bias. We view this as highly unlikely and as such the pressure is set to remain on the downside in AUD/USD. ASIAN CURRENCY OUTLOOK * USD/AXJ is set to open mostly higher (USD/SGD exception - safe haven) as risk trades sink overnight on a much worse than expected US ISM data release. The EM train wreck has flowed through into developed markets with Wall Street down over 2.0% overnight whilst US Treasury yields took another hammering. An overhang of poor positioning is behind most moves (long equities/short bonds) with FX somewhat stable apart from USD/JPY which broke below 101 overnight. Nikkei keeps sliding (futures down 2.5%) which in turn is forcing unwinding of the great long Nikkei/short Yen trade. Players will keep a close eye on Nikkei moves today for further weakness which may send USD/JPY back below 100. USD/AXJ to maintain its bid tone but no panic (at least yet) is expected. * USD/KRW traded a moderate 1078.3-1085.3 range in Asia on Monday; last at 1084.5. The pair opened at an elevated 1081 (from Thursdays 1070.4 close) and after some early chopped tried the downside. Kospi losses led by foreign sales dominated proceedings with USD/KRW bouncing seven Won from its intraday low. The Kospi closed down 1.1%. Overnight implieds traded a 1085.5-1090.2 range; last in NY 1089.5/1090. * USD/SGD traded a modest 1.2761-1.2779 range in Asia on Monday; last at 1.2763. The Straits Times closed down 1.2%. * USD/MYR Malaysian markets remained closed on Monday for LNY. Overnight the implieds traded a 3.3470-3.3600 range; last in NY at 3.3560/90. * USD/IDR traded a 12220-12260 range in Asia on Monday; last at 12230. The Jakarta Interbank Spot Dollar Rate (JISDOR) was set at 12251. The IDX Composite closed down 0.75%. Overnight the NDFs traded a 12155-12200 range; last in NY at 12200/12220. * USD/PHP traded a 45.30-415 range in Asia on Monday; last at 45.41. The PSE index closed down 0.4%. Overnight the implieds traded a 45.54-63 range; last at 45.63-65. * USD/THB traded a 32.83-33.03 range in Asia on Monday; last at 32.96. The Set closed up 1.5%. * USD/TWD Taiwanese markets remain closed until Feb 5 for LNY holidays. Overnight the implieds traded a 30.31-33 range; last in NY at 30.34/35. * USD/CNY Chinese markets remain closed until Feb 7 for LNY. There were no recorded 1-yr NDF trades overnight; last in NY at 6.1240/60. * USD/INR traded a 62.56-79 range in Asia on Monday; last at 62.57. The Sensex index closed down 1.5%. Overnight the implieds traded a 62.95-63.42 range; last 63.35/38. Looking Ahead - Economic Data (GMT) 04 Feb 23:00 KR CPI growth 04 Feb 03:30 AU RBA cash rate 04 Feb 08:30 HK Retail sales Week ahead * Central banks: RBA, BOE and ECB meet and the ECB event will receive the most attention after the soft EZ CPI data released on Friday. ECB under pressure to take action as deflation concerns deepen * Much softer EZ CPI on Friday has raised expectations ECB will have to act * ECB meets Thursday and calls for action are growing strong * Most economists see ECB holding off but it's becoming a close call * WSJ reported Friday that the Bundesbank now favours end of sterilization * Calls for ECB to address shrinking liquidity and shrinking credit * Fund community buying 1-week EUR/USD put options just in case * RBA is expected to remain on hold when they meet on Tuesday, but the market will look for a change of language that will reflect a move away from an easing bias. The problem is the RBA hasn't put an easing bias in their last few statements and we have had to wait for the RBA Minutes of the meeting to find the easing bias remains. The RBA Quarterly Statement on Monetary Policy (SOMP) will be released on Thursday and the market will likely find out then if the RBA has moved away from an easing bias to a neutral stand. The BOE is expected to remain on hold and isn't likely going to issue a statement. * Key data in the week ahead - US non-farm payrolls the main focus It will be a very busy week for data - ending with Friday's US non-farm payroll. Key US data before Friday's jobs report includes US Factory Orders on Tuesday; ADP employment Wednesday and Trade data on Thursday.
OVERNIGHT RANGES---------------------------INTRADAY RANGES -- Close 2200GMT NDFS OPEN HIGH LOW LAST VOL CURRENCY HIGH LOW CLOSE IDR 12215 12200 12155 12200-12220 Hi USD/JPY 102.41 100.77 100.97 INR 63.10 63.42 62.95 63.35-38 Hi EUR/USD 1.3536 1.3477 1.3525 KRW 1087.5 1090.2 1085.5 1089.5-1090 Hi EUR/JPY 138.10 136.37 136.60 MYR 3.3525 3.3600 3.3470 3.3560-90 Hi GBP/USD 1.6449 1.6291 1.6305 PHP 45.57 45.63 45.54 45.63-65 Hi USD/CAD 1.1135 1.1041 1.1119 TWD 30.31 30.33 30.31 30.34-35 Hi AUD/USD 0.8834 0.8730 0.8754 CNY 1-mth 6.1085 6.1065 6.1070-90 NZD/USD 0.8138 0.8074 0.8084 CNY 6-mth No Trades 6.1120-40 USD/SGD 1.2779 1.2743 1.2758 CNY 1-yr No Trades 6.1240-60 USD/THB 33.03 32.83 32.95 Equities Close Change %Change UST(Yields) Close Previous DJIA 15373 -326 -2.08 10-year 2.58% 2.65% S&P 500 1742 -41 -2.28 2-year 0.30% 0.33% Nasdaq 3997 -107 -2.61 30-year 3.53% 3.60% FTSE 6466 -45 -0.69 Spot Gold($) 1256.40 1244.00 DAX 9187 -120 -1.29 Nymex 96.43 97.49 Nikkei 14619 -295 -1.98 Brent 105.95 106.40
Reporting by John Noonan and Peter Whitley