August 13, 2014 / 11:50 PM / 3 years ago

IFR Markets ForexWatch Asia Regional Daily Briefing

SYDNEY, August 14 (IFR) - 
Headlines from Wednesday night
* Fed's Dudley essential to make short-term wholesale funding market more
stable, extraordinary interventions in shadow banking will be more difficult to
undertake post-crisis
* Fed's Rosengren urges higher capital requirements for any dealer w/significant
broker dealer ops
* Canadian home prices rise 1.1% in July - Teranet
* French Socialist party head says unavoidable that France would abandon an EU
target to cut the deficit to 3% of GDP next year
* Irish consumer sentiment climbs to 89.4 in July from 81.1 in June
* Brazil pres candidate Campos dies on plane crash near Santos (Globonews TV)
* Brazil's Rousseff cancels all campaigning for 3 days in wake of death of
opposition candidate Campos
* USD Retail Sales MM Jul 0%, f/c 0.2%, 0.2%-prev
* USD Retail Sales Ex-Autos MM Jul 0.1%, f/c 0.4%, 0.4%-prev
* USD Retail Ex Gas/Autos Jul 0.1%, 0.6%-prev
* USD Retail Control Jul 0.1%, f/c 0.4%, 0.5%-prev
* US Business Inventories MM Jun 0.4%, f/c 0.4%, 0.5%-
* Reuters Poll 1 in 3 chance ECB embarks on asset purchase program in 2015
* Reuters Poll US Fed to begin raising interest rates in Q2 '15 (unchanged from
July poll)
* Swiss Aug ZEW investor sentiment 2.5 vs 0.1 prev, -1.0 exp 
* Switzerland adds Raiffeisen to too-big-to-fail list - Reuters
* Norway Jun Retail sales ex-autos +1.2%, +0.4% expc
* UK Jul Claimant count unemployment change -33.6k vs -36.3k prev, -30.0k exp
* UK Jun ILO unemployment rate 6.4% vs 6.5% prev, 6.4% exp
* UK Jun Average week earning 3M -0.2%y/y vs 0.3% prev, 0.7% exp
* BoE - Deliberate attempt to shift rate hike expectations to 2015 - IFR 
* BoE - Continued labour market strength, average earnings fall - IFR 
* BoE's Carney: Puts importance on pace of wage & unit labour cost data - Rtrs
 Themes from Wednesday
* The main theme across asset markets on Wednesday was a dovish turn in global
c/bank expectations following weaker data from China; as dovish interpretation
of the Bank of England inflation quarterly and flat US retail sales data. 
 
* GBP fell sharply across the board following mixed-to-weaker UK employment data
and a mixed-to-dovish BOE quarterly inflation report.
 
* GBP/USD initially popped higher from 1.6810 to 1.6850 after the headlines from
the BOE report before collapsing over a cent when the market focused on the BOE
slashing its forecast on wage growth from 2.50% to 1.25%. For 2014 that were
followed by BOE gov Carney commenting that UK wage growth was "remarkably weak".
 
* GBP/USD closed at 1.6688 - down 0.75% from Tuesday's 1.6812 close. 
 
* The 2-year UK gilt yield plunged from the intra-day 0.85% high to 0.70% at one
stage. It closed at 0.72% - down from Tuesday's close at 0.81%.
 
* US yields also moved lower on Wednesday following weaker than expected US
Retail Sales. The market is coming around to believe the doves at the Fed will
remain cautious and the patchy nature of the US economic recovery will ensure
the Fed won't be in any hurry to commence the tightening cycle.
 
* The 2-yr US Treasury yield fell another 2bps to 0.42% and is down a whopping
17bps from the July 30 high at 0.59%. 
 
* Equity investors welcomed the dovish turn in central bank expectations despite
the weaker global growth implications.
 
* The London FTSE rose 0.4% despite the weaker UK employment data while Wall
Street shrugged off the weak US Retail Sales - with the Dow rising 0.55%; the
S&P jumping 0.7% higher and the NASDAQ closed up over 1.0%. 
 
* The improved risk appetite helped to support the carry trade currencies. 
 
* AUD was the best performing currency Wednesday despite the downside miss in
some of the China data that led to London copper falling 1.15% to its lowest
level since June 25. 
 
* AUD/USD closed at 0.9305 - up 0.4% from Tuesday's close at 0.9269. NZD/USD
closed at 0.8458 up 0.3% from Tuesday's close.
 
* Key commodities were mixed on Wednesday - with Lon copper falling 1.15%; NY
copper fell 1.4%; gold rose to 1312 from 1309 due to the dovish turn in c/bank
expectations; NYMEX Crude closed flat and iron ore fell 80 cents to 93.20. 
 
* EUR/USD was choppy on Wednesday, but managed to close virtually unchanged for
the day at 1.3364. EUR/USD traded up to 1.3416 following the weaker US Retail
Sales data before sovereign related names came in and sold.
 
* USD/JPY traded as high as 102.55, as carry trade demand trumped the move lower
in UST yields. USD/JPY closed at 102.41 - up 0.15% from Tuesday's 102.26 close.
 
Wrap-up
It is an interesting mix of factors driving asset markets at present. Just a few
weeks ago there was an upbeat view regarding global growth prospects after a run
of better than expected China data and a run of strong US employment data.
Concerns over the weak EZ economy and downturn in the Japanese economy were put
shrugged off, as the US and China was seen as the main growth engines. Biggest
concern for investors was how the market would absorb the US Fed normalizing
monetary policy sooner rather than later thanks to the strengthening US
economy. 
       
Suddenly it appears that global growth prospects are looking a bit shaky. The
most recent China data has thrown some doubts on the belief China will easily
attain its 7.5% growth target in 2014 - while US data has been patchy and FOMC
doves led by Yellen appear to be more concerned over risks of a downturn caused
by raising rates too soon than they are about risking inflation moving above
their target by waiting too long.
     
Both the RBA quarterly SOMP and the BOE quarterly inflation report were more
dovish than analysts were expecting - so it appears that central bankers aren't
so confident that the balance of 2014 will see strong global growth momentum.
      
This leaves the FX world in a confused state, as most were expecting the USD to
start trending higher into August/September when the Fed would likely signal
when and by how much the tightening cycle will play out. And the Bank of England
was supposed to be softening the ground for a rate hike as early as late 2014.
The equity markets appear to be relieved by the dovish turn in central bank
expectations - so maybe the carry trade will come back in vogue and at least
temporarily support AUD and NZD. John.Noonan@thomsonreuters.com
 ASIAN CURRENCY OUTLOOK
 
USD/AXJ fell modestly overnight through OTC and NDF markets. A dovish turn in
central bank expectations (read BOE) and soft US retail sales data gave risk
assets a lift while bond yields (especially in the front end) slumped. The BOE
inflation report was initially viewed as hawkish but when it was realized that
the wage growth outlook had been slashed, GBP collapsed. The (interest rates)
lower for longer call was back in vogue allowing USD/AXJ to ease. BOK meets
today with the market expecting the c/b to cut 25bps in order to improve
domestic sentiment after the dreadful ferry accident. 
 
USD/KRW traded a 1026.8-1029.7 range in Asia on Wednesday; last at 1028.9. The
Kospi closed up 1.0%. 
 
USD/SGD traded a modest 1.2496-1.2512 range in Asia on Wednesday; last at
1.2506. The Straits Times closed down 0.1%.
 
USD/MYR traded a 3.1895-3.1965 range in Asia on Wednesday; last at 3.1925. The
KLSE index closed up 0.4%.
 
USD/IDR traded an 11680-11696 range in Asia on Wednesday; last at 11690. The
Jakarta Interbank Spot Dollar Rate (JISDOR) was set at 11683. The IDX Composite
closed up 0.7%.
 
USD/PHP traded a 43.88-98 range in Asia on Wednesday; last at 43.965. The PSE
index closed up 0.0%.
 
USD/THB traded a 31.945-32.08 range in Asia on Wednesday; last at 31.995. The
Set closed up 1.6%.
 
USD/TWD traded a 30.00-30.011 range in Asia on Wednesday; last at 30.004. The
Taiex closed up 0.75%.
 
USD/CNY was set in Asia on Wednesday at 6.1533 slightly higher than the previous
6.1517 fix. The OTC market traded a 6.1538-6.1625 range; last at 6.1544. USD/CNH
last at 6.1588 - range 6.1580-6.1655. The 1-yr NDF was last quoted in Asia at
6.2375-6.2385. The Shanghai Composite closed down 0.5%. 
 
USD/INR traded a 61.21-30 range in Asia on Wednesday; last at 61.2275. The
Sensex index closed up 0.15%.
 A closer look at the commodity market
* Key commodities were mixed on Wednesday - Lon copper fell 1.15% to its lowest
level since June 25 on China growth concerns; NY copper fell 1.37%; gold rose to
1312 from 1309 due to the dovish turn in c/bank expectations; NYMEX Crude closed
flat and iron ore fell another 80 cents to 93.20. 
 
A closer look at the fixed interest market
* The main theme across asset markets on Wednesday was a dovish turn in global
c/bank expectations following weaker data from China; as dovish interpretation
of the Bank of England Inflation Quarterly and flat US Retail Sales data. 
 
* The 2-yr UK gilt yield plunged from the intra-day 0.85% high to 0.70%. It
closed at 0.72% - down from Tuesday's close at 0.81%. The 10-yr UK gilt yield
closed at 2.44% down from Tuesday's close at 2.48%.
 
* US yields also moved lower on Wednesday following weaker than expected US
Retail Sales. The market is coming around to believe the doves at the Fed will
remain cautious and the patchy nature of the US economic recovery will ensure
the Fed won't be in any hurry to commence the tightening cycle.
 
* The 2-yr UST yield fell another 2bps to 0.42% and is down a whopping 1bps from
the July 30 high at 0.59%.  The 10-yr yield closed at 2.42% down from Tuesday's
close at 2.44%. 
 OVERNIGHT RANGES---------------------------INTRADAY RANGES -- Close 2100GMT
NDFS OPEN   HIGH   LOW     LAST        VOL CURRENCY   HIGH     LOW    CLOSE
IDR  11750  11750  11730   11735-11755 N/A USD/JPY   102.55  102.22  102.41
INR  61.60  61.58  61.42   61.42-43    N/A EUR/USD   1.3416  1.3342  1.3364 
KRW  1031   1032   1030.3  1030.5-31.5 N/A EUR/JPY   137.18  136.62  136.87
MYR  3.1990 3.1980 3.1900  3.1915-25   N/A GBP/USD   1.6850  1.6685  1.6688
PHP  43.97  43.95  43.84   43.83-85    N/A USD/CAD   1.0941  1.0906  1.0914
TWD  30.00  30.00  29.99   29.99-00    N/A AUD/USD   0.9320  0.9264  0.9305
CNY  1-mth  6.1645 6.1625  6.1630-40       NZD/USD   0.8480  0.8420  0.8458
CNY  6-mth  No     Trades  6.1970-90       USD/SGD   1.2512  1.2481  1.2493
CNY  1-yr   dealt  6.2355  6.2350-70       USD/THB    32.08   31.94   31.96 
 
Equities  Close   Change  %Change  UST(Yields)    Close    Previous
DJIA      16652      +91    +0.55  10-year        2.42%      2.45%
S&P 500    1947      +13    +0.67  2-year         0.42%      0.44%
NASDAQ     4434      +45    +1.02  30-year        3.25%      3.28%
FTSE       6657      +25    +0.37  Spot Gold($) 1311.80    1309.30
DAX        9199     +130    +1.43  Nymex          97.59      97.37
Nikkei    15214      +52    +0.35  Brent         103.91     102.91


    
    

 (Reporting by John Noonan and Peter Whitley)

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