August 17, 2014 / 11:29 PM / 3 years ago

IFR Markets ForexWatch Asia Regional Daily Briefing

SYDNEY, August 18 (IFR) - 
    
    
Weekend News
BOE Chief Carney says rate rise can precede rise in real wages - Sunday Times
* Carney told UK Times that rise in real wages not a pre-condition for rate hike
* Says Bank is confident real wages will sustainably grow
* Carney said 17% rise in GBP from March low not a deterrent to rate hike
* Carney would be comfortable for BOE to be first of big 4 central banks to hike
 
BOE expectations have been swinging around in recent months, as the BOE seems
intent on fine tuning market expectations as to if and when they will commence a
tightening cycle. BOE Governor Carney was interviewed in the Sunday Times this
weekend and his comments look a bit hawkish at first blush. Last week's BOE
quarterly inflation report indicated rates would move higher only if wage growth
picks up. This caused the market to have a dovish shift in BOE timing
expectations. Perhaps Carney felt the dovish shift was an overreaction, as his
comments on the weekend suggest the BOE remains on course to begin a tightening
cycle before the Fed - and certainly before the ECB and BOJ - who probably have
more easing to do first. GBP might pop higher on Monday after it underperformed
on Friday despite better UK GDP data.   John.Noonan@thomsonreuters.com
 
Ukraine crisis remains fluid as separatists prepare for counter offensive The
Ukraine crisis remains fluid amid claims from pro-Russian separatist leader that
Russian trained troops and new Russian armored vehicles will be assembled to
launch a major counter offensive in eastern Ukraine. The Ukraine army has been
steadily taking ground from the rebels, as a Russian convoy remains on the
Russian side of the border to provide was Moscow claims to be a humanitarian
 mission to avoid a "human catastrophe". John.Noonan@thomsonreuters.com
 
Headlines from Friday Night
* Texas Gov. Rick Perry Indicted on Charge of Abuse of Power
* Fitch Upgrades Ireland to 'A-' from BBB+; Outlook Stable
* Fed's Kocherlakota (Dove) Fed is long way from inflation goal, some way from
employment goal, inflation won't reach Fed's 2% goal until '18, 
* Canada's FinMin encouraged by revised jobs data is cautiously optimistic,
encouraged by increase in the number of hours worked
* Japan US Treasury holdings steady in June, China holdings fall to 1.268trn in
June from 1.271trn in May
* US NY Fed Mfg Aug 14.69, f/c 20, 25.6-prev
* US PPI Final Demand MM Jul 0.1%, f/c 0.1%, 0.4%-prev
* US Core PPI Final Demand MM Jul 0.2%, f/c 0.2%, 0.2%-prev
* US PPI Final Demand YY Jul 1.7%, f/c 1.8%, 1.9%-prev
* US Core PPI Final Demand YY Jul 1.6%, f/c 1.6%, 1.8%-prev
* US Net L-T Flows, Ex swaps Jun -18.7b, 18.6b-prev
* US Foreign Buying, T-Bonds Jun -20.8b, 25.0b-prev
* US Overall Net Capital Flows Jun -153.5b, 33.1b-prev
* US Net L-T Flows, Incl. Swaps Jun -30.2b, 7.7b-prev
* US Industrial Output MM Jul 0.4%, f/c 0.3%, 0.4%-prev
* US Capacity Utilization MM Jul 79.2%, f/c 79.2%, 79.1%-prev
* US Mfg Output MM Jul 1%, f/c 0.4%, 0.3%-prev
* US TR/UoM Sentiment Aug 79.2, f/c 82.5, 79.1-prev
* US TR/UoM Conditions Aug 99.6, f/c 97.8, 97.4-prev
* US TR/UoM Expectations Aug 66.2, f/c 73, 71.8-prev
* CA Employment Change Jul +41.7k, f/c 20.0k, -9.4k-prev
* CA Unemployment Rate Jul7%, f/c 7.1%, 7.1%-prev
* CA Full time employment chg Jul -18.1k, 33.5k-prev
* CA Part time employment chg Jul +59.9k, -43.0k-prev
* CA Participation Rate Jul 66.1%, f/c 66.1%, 66.1%-prev
* CA Manufacturing Sales MM Jun 0.6%, f/c 0.4%, 1.7%-prev
* UK Q2 GDP 2nd release 0.8% q/q vs 0.8% prev, 0.8% exp
* UK Q2 GDP 2nd release 3.2% y/y vs 3.1% prev, 3.1% exp
 
Themes from Friday
* The main themes across asset markets on Friday were another run of patchy US
data and an escalation of the Russia/Ukraine crisis.
* Reports Russian troops crossed the Ukraine border and claims made by Ukraine
they engaged in military action to turn back the Russian column rattled the
equity markets - German DAX went from over 1.0% higher to closing down 1.4%.
* Empire State Mfg plunged to 14.69 in Aug from 25.60 in July (20 Reuters poll);
IP came in slightly better than expected at plus 0.4% M/M (plus 0.3% Reuters
poll) and UoM Sentiment came in at 79.2 vs 82.5 expected in the Reuters poll.
* Wall Street opened higher before falling hard on the Ukraine news. The S&P was
up 0.45% before falling 0.7% into the red and then recovering to close flat.
* As the US afternoon wore on - the impact of the Russia/Ukraine escalation
started to fade amid reports from Russia that countered claims the Ukraine army
destroyed Russian armored column and reports that Ukraine and Russian foreign
ministers would meet in Berlin on Sunday. 
* Safe haven core-sovereign yields fell sharply from what were already extremely
low levels.
* The 10-yr German bund yield closed at 0.96% down from Thursday's close at
1.01%.
* The 10-yr UST yield fell to 2.30% at one stage - the lowest level since June
20- before closing at 2.34% - down from Thursday's close at 2.40%.
* There was some logic to the moves in equity and bond markets - but reactions
in the commodity and FX markets are much more difficult to explain logically.
* Volatility during the US session in currency markets picked up significantly
due to a number of factors - but the closing levels of the major currency pairs
didn't make a whole lot of sense.
* AUD/USD; NZD/USD; USD/CAD; GBP/USD and USD/JPY closed within a few pips of
Thursday's close while EUR and especially CHF strengthened across the board.
* GBP/USD closed unchanged at 1.6689 and EUR/GBP managed to gain 0.25% despite
UK Q2 GDP coming in at 3.2% Y/Y (plus 3.1% Reuters poll) - more than 6-yr high.
* CAD was extremely lively after the bureau of stats re-released the Canadian
job numbers and revised them to plus 41.7k vs plus 20k expected. USD/CAD fell
hard to 1.0861 from 1.0905 before staging a nasty reversal to 1.0919 then
closing precisely where it closed Thursday at 1.0902.
* EUR/USD closed at 1.3400 up 0.26% on the day while CHF was the best performing
currency on Friday - as USD/CHF fell 0.5% to 0.9020 from Thursday's 0.9065 close
* Only logical explanation for broad EUR and CHF strength is speculation that
escalation of the Russia/Ukraine crisis will lead to more sanctions imposed on
Russia and that will result in Russia moving out of US dollars and diversifying
into EUR and CHF. The fact that European economy will suffer the most by the
rising tensions in Ukraine isn't a factor as far as the FX market is concerned.
* The sharp rise in geopolitically based risk aversion normally pushes up the
gold price, but on Friday it merely took gold off the intra-day low and it still
closed down over 0.6% at 1,304.
* Copper and other base metals moved higher Friday on speculation major central
banks including China's PBOC will step up stimulus to prop up growth. Lon Copper
closed up 0.66% and NY copper closed up 0.37%. The apparent escalation of the
Russia/Ukraine crisis helped push NYMEX Crude up 1.85% on Friday.
* US dollar index closed at 81.42 - down 0.20% from Thursday's close at 81.58.
 
Wrap-up
Geopolitics forced its way back onto the market's radar on Friday, as the
Russian/Ukraine crisis appears to be coming to a head. The weekend press reports
suggest crisis remains fluid and risks remain of a more serious confrontation
between Russian and Ukraine forces. If the crisis was to deepen - it will likely
short-circuit the equity market rally that tried to take hold last week and
force yields of safe haven bonds to move even lower than they are now. Global
growth concerns are already weighing on some risk assets such as commodities and
an escalation of the Russia/Ukraine crisis will directly impact European growth
prospects that look anemic without the crisis.
 
EUR has remained remarkably resilient; as the market is very short the single
currency and sovereign related buyers below 1.3350 continue to frustrate the
shorts. We might see the consolidation continue until late in the week when
Jackson Hole steals the limelight and possibly clarifies Fed expectations.
 
GBP might get a boost on Monday morning, as he interview with BOE Gov Carney
suggested he is a bit more hawkish than the interpretation of last week's BOE
inflation report. GBP has been underperforming due to a dovish shift in BOE
expectations - so GBP could move higher on another hawkish shift.
 
AUD performed relatively well last week, but the upside might be limited if the
RBA minutes and Stevens' testimony before parliament reinforce some of the
dovish overtones contained in the RBA SOMP released on Aug 8. AUD could be
vulnerable if volatility picks up due to either geopolitical concerns and/or
shifts in major central bank expectations. John.Noonan@thomsonreuters.com
     
ASIAN CURRENCY OUTLOOK
* USD/AXJ is set to open slightly mixed after patchy US data and renewed
concerns over the possibility of an escalation of the Ukraine/Russia
geopolitical threat. European stocks were up before swinging hard down on
Russia/Ukraine stories. Safe haven bond yields (US and Germany in particular)
also dived before coming back are for air but still well down on the night. FX
currencies did not know how to react content to carve out tight ranges. The CHF
was the star performer on the night with USD/CHF down 0.5% on safe haven flows.
If AXJ currencies could escape the geopolitical headlines bogey than undoubtedly
we would see strength across the field as the secular stagnation (or interest
rates lower for longer) theme takes a firm grip on proceedings. Key event next
week will be the appearance of Fed Chair Yellen as Jackson Hole on Friday.
Jackson Hole has becoming a staging point in recent years for policy changes.
* USD/KRW Korean markets were closed on Friday for National Liberation Day.
* USD/SGD traded a 1.2434-1.2465 range in Asia on Friday; last at 1.2442. The
Straits Times closed up 0.6%.
* USD/MYR traded a 3.1530-3.1742 range in Asia on Friday; last at 3.1535. The
KLSE index closed up 0.15%.
* USD/IDR traded an 11672-11693 range in Asia on Friday; last at 11675. The
Jakarta Interbank Spot Dollar Rate (JISDOR) was set at 11693. The IDX Composite
closed down 0.15%.
* USD/PHP traded a 43.56-76 range in Asia on Friday; last at 43.67. The PSE
index closed down 0.75%.
* USD/THB traded a 31.84-98 range in Asia on Friday; last at 31.845. The Set
closed up 0.3%.
* USD/TWD traded a 29.952-992 range in Asia on Friday; last at 29.955. The Taiex
closed down 0.26.
* USD/CNY was set in Asia on Friday at 6.1538 slightly lower than the previous
6.1545 fix. The OTC market traded a 6.1455-6.1507 range; last at 6.1470. USD/CNH
last at 6.1463 - range 6.1445-6.1525. The 1-yr NDF was last quoted in Asia at
6.2235-6.2255. The Shanghai Composite closed up 0.9 %. 
* USD/INR Indian markets closed on Friday for Independence Day.
 
Economic Data Releases (GMT)
18 Aug 00:30 SG Non-Oil Exports
18 Aug 01:30 AU New Motor Vehicle Sales 
18 Aug 01:30 CN China House Prices  
18 Aug 02:30 TH GDP Growth 
18 Aug 08:30 HK Unemployment Rate
 
Looking Ahead - Events, Other Releases (GMT)
No significant events
 
The week ahead - Big week ahead for the shaping of central bank expectations
* Main theme for markets in coming week will be central bank expectations
* RBA, BOE and FOMC will release minutes from most recent meetings
* RBA governor Stevens appears before Australia parliament
* Fed chair Yellen Keynotes at Jackson Hole where ECB chief Draghi also speaks
 
The big event for the week will be Yellen's speech at Jackson Hole where the
labor market will be the sole focus of the speech. ECB President Draghi also
speaks at the Jackson Hole Summit and there is some expectation he will convey
that the ECB is ready to take bold action.
 
The BOE Minutes will be released on Wednesday after there has been a dovish turn
in BOE expectations. The BOE quarterly inflation report was viewed by the market
as being dovish - so there is expectations the minutes will reflect less urgency
to commence a tightening cycle. 
 
Key data in the week ahead - Flash PMIs the main focus: It isn't a particularly
busy week for economic data around the world. EZ PMI data released on Thursday
will be the main focus, as the faltering EZ economy is putting pressure on the
ECB to be more assertive. HSBC Flash China MFG PMI also released Thursday and
will catch the market's attention after recent China data (particularly loan
data) has thrown some doubt on the strength of the rebound from Q1 2014.
 
The key data out of the UK this week will be CPI out on Tuesday followed by
Retail Sales on Thursday. 
 
US CPI is out on Tuesday, but as Yellen has clearly stated it is not one of the
Fed's favorites - it is unlikely going to be a market mover unless it is well
out of line with expectations. US housing data will be in focus with Building
Permits and Housing Starts out on Tuesday while Existing Home Sales is out
Thursday. John.Noonan@thomsonreuters.com
 
A closer look at the equity market
* Reports Russian troops crossed the Ukraine border and claims made by Ukraine
they engaged in military action to turn back the Russian column rattled equity
markets.
* German DAX fell around 200 points in an hour going from being over 1.0% higher
to closing down 1.4%. Ldn FTSE went from being up over 0.85% to closing the day
up just 0.06%; French CAC closed 0.7% lower; Milan index edged 0.3% lower and
Spanish IBEX closed the day down 0.7%.
* For the week the London FTSE gained 1.86%; German DAX rose 0.9%; French CAC
gained 0.6%; Milan rose 1.5% and the Spanish IBEX had a weekly gain of 1.17%.
* Wall Street opened higher before falling hard on the Ukraine news. The S&P was
up 0.45% before falling 0.7% into the red and then recovering to close flat.
* For the week Dow gained 0.7%; the S&P rose 1.2% and the NASDAQ gained 2.2%.
* The VIX index closed at 13.15 on Friday up 5.9% from Thursday's close at
12.42. For the week the VIX fell 16.6% from last week's close at 15.77.
* MSCI LATAM Index rose 0.1% on Friday and for the week powered 2.86% higher.
 
A closer look at the commodity market
* The sharp rise in geopolitically based risk aversion normally pushes up the
gold price, but on Friday it merely took gold off the intra-day low and it still
closed down over 0.6% at 1,304.
* Before the Russia/Ukraine reports came through - Gold fell as low as 1,292.50,
as longs taken earlier in the week pared back due to global growth concerns and
rebounding equity markets.
* Copper and other base metals moved higher Friday on speculation major central
banks including China's PBOC will step up stimulus to prop up growth. Lon Copper
closed up 0.66% and NY copper closed up 0.37%. The apparent escalation of the
Russia/Ukraine crisis helped push NYMEX Crude up 1.85% on Friday.
* For the week gold fell 0.46%; Lon Copper fell 1.8%; NY Copper fell 2.2%; NYMEX
Crude edged 0.3% lower; Brent Crude fell 1.4% and iron ore fell 2.6%.
 
A closer look at fixed interest
* The escalation of Russia/Ukraine tensions sent sovereign yields sharply lower
from what were already extremely low levels.
* The 10-yr German bund yield closed at 0.96% down from Thursday's close at
1.01%. The 10-yr Spanish bond yield fell to 2.30% from 2.37% and 10-yr Italian
bond yield fell 5bps to 2.60%. The 10-yr UK gild yield plunged 12bps to 2.32%.
* The 10-yr US Treasury yield fell to 2.30% at one stage - the lowest level
since June 20- before closing at 2.34% - down from Thursday's close at 2.40%.
The 20-yr bond yield fell as low as 3.10% - the lowest level in 15 months before
closing at 3.13% down from Thursday's close at 3.19%. The 2-yr Treasury yield
closed unchanged at 0.41%.
* For the week the 2-yr Treasury yield eased 3bps; the 10-yr Treasury yield fell
7bps and the 30-year yield fell 9bps.
 
John Noonan's Technical view as at 17 August 2014
 
Equities
* S&P stopped trending lower early last week, but it is still a fair way away
from resuming the trend higher - according to the daily moving average studies.
A daily close above the 50-dma at 1,958 would be bullish and target congestion
between 1,980/1,990. Support has formed between 1,900/1,920. {Last 1,955.06}
* Nikkei remains volatile and goes from looking technically bearish one week to
looking ready to trend higher the next. The looming trend lower was nullified by
the positive price action last week. There is good resistance between 15,330
(20-dma) and 15,375 where the 61.8 fibo of the 15,759/14.753 move is found.  
{Last 15,318}
* ASX bounced well away from very strong technical support between 5.350/5,420
and is starting to threaten resuming the trend higher. The break and close above
the 61.8 fibo of the 5,644/5,425 move at 5,561 was bullish targets a full
retracement to the 6-yr high at 5,644.  {Last 5,566}
 
Commodities
* Gold consolidated last week and failed to maintain positive momentum to
commence trending higher. Key support is found at the 61 .8 of the 1,240/1,345
move at 1,280 while strong resistance has formed at 1,320/25. A break of wither
level will likely determine next trend.  {Last 1,304}
* Lon Copper: The break below support at 6,950 and subsequent price action
confirms copper is in a short-term trend lower, according to the daily moving
average studies. Support has formed ahead of 6,820 - with a break below
targeting the June low around 6,615. {Last 6,870}
 
FX
* EUR/USD continues to trend lower, but the trend sorely momentum according to
the daily moving average studies. EUR/USD tested the 20-dma at 1.3412 and a
break and close above that reading would suggest the trend lower has run its
course and a break above the 38.2 fibo of the 1.3701/1.3333 move at 1.3473
targets a move back to 1.3545/60.  A break below 1.3330 is needed to revive
downward momentum. {Last 1.3400}
* USD/JPY isn't trending and is in a period of whippy consolidation. A break
below 101.00 or above 103.20 is needed to spark a trend.  {Last 102.36}
* AUD/USD started to trend lower the previous week, but that proved to be a
short-lived affair. The moving average studies have turned neutral. Resistance
is found at the 100-dma at 0.9340 with break targeting 0.9355/60 where the 50%
of the 0.9480/0.9239 move and the 55-dma converge.   {Last 0.9323}
John.Noonan@thomsonreuters.com

OVERNIGHT RANGES---------------------------INTRADAY RANGES -- Close 2100GMT
NDFS OPEN   HIGH   LOW     LAST        VOL CURRENCY   HIGH     LOW    CLOSE
IDR  11725  11755  11710   11745-11755 N/A USD/JPY   102.72  102.13  102.36
INR  61.10  61.30  61.12   61.26-29    N/A EUR/USD   1.3412  1.3359  1.3400 
KRW  1019   1021   1019    1019.5-1020 N/A EUR/JPY   137.61  136.77  137.12
MYR  3.1600 3.1600 3.1530  3.1560-80   N/A GBP/USD   1.6702  1.6676  1.6689
PHP  43.65  43.73  43.61   43.68-71    N/A USD/CAD   1.0919  1.0861  1.0902
TWD  29.91  29.93  29.90   29.92-935   N/A AUD/USD   0.9335  0.9298  0.9323
CNY  1-mth  Deal   6.1590  6.1580-00       NZD/USD   0.8502  0.8467  0.8486
CNY  6-mth  No     Trades  6.1980-00       USD/SGD   1.2465  1.2434  1.2445
CNY  1-yr   Dealt  6.2250  6.2240-60       USD/THB    31.98   31.84  31.865 
 
Equities  Close   Change  %Change  UST(Yields)    Close    Previous
DJIA      16663      -51    -0.30  10-year        2.34%      2.40%
S&P 500    1955       -0    -0.01  2-year         0.41%      0.42%
NASDAQ     4465      +12    +0.27  30-year        3.13%      3.19%
FTSE       6689       +4    +0.06  Spot Gold($) 1306.20    1313.80
DAX        9093     -132    -1.43  Nymex          97.35      95.50
Nikkei    15318       +4    +0.02  Brent         103.40     101.95
       

 (Reporting by John Noonan and Peter Whitley)

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