SYDNEY, Nov 21 (IFR) -
Headlines from Thursday Night * Fed’s Tarullo risks remain despite steps to regulate liquidity * Draghi says Europe needs economic model that boosts growth, employment (DJ) * Wall Street dealers see first Fed rate hike in June (NY Fed dealers survey) * SNB’s Zurbruegg Swiss CB will intervene to defend franc if necessary, prepared to purchase FX in unlimited quantities * US CPI MM, SA Oct 0, f/c -0.1%, 0.10%-prev * US CPI YY, NSA Oct 0.017, f/c 1.6%, 1.70%-prev * US Core CPI MM, SA Oct 0.002, f/c 0.1%, 0.10%-prev * US Core CPI YY, NSA Oct 1.8%, f/c 1.7%, 1.70%-prev * US CPI Index, NSA Oct 237.43, f/c 237.3, 238.03-prev * US Core CPI Index, SA Oct 239.16, 238.68-prev * US Real Weekly Earnings MM Oct 0.4%, f/c 0.3%, -0.10%-prev * US Initial Jobless Claims w/e 291k, f/c 285k, 293k-prev * US Jobless Claims 4-Wk Avg w/e 287.50k, 285.75k-prev * US Continued Jobless Claims w/e 2.330m, f/c 2.370m, 2.403m-prev * US Markit Mfg PMI Flash Nov 54.7, f/c 56.4, 55.90-prev * US Existing Home Sales Oct 5.26m, f/c 5.16m, 5.18m-prev * US Exist. Home Sales % Chg Oct 1.5%, f/c 0%, 2.60%-prev * US Leading Index Chg MM Oct 0.9%, f/c 0.6%, 0.70%-prev * US Philly Fed Biz Index Nov 40.8, f/c 18.3, 20.7-prev (highest since Dec 1993) * US Philly Fed 6M Index Nov 57.7, 54.5-prev * US Philly Fed Capex Index Nov 23, 18.9-prev * US Philly Fed Employment Nov 22.4, 12.1-prev (highest since May 2011) * US Philly Fed Prices Paid Nov 17.3, 27.6-prev * US Philly Fed New Orders Nov 35.7, 17.3-prev (highest since Oct 1988) * CA Wholesale Trade MM Sep 1.8%, f/c 0.8%, 0.00%-prev * MX Retail Sales YY Sep 4.5%, f/c 3%, 4.40%-prev * MX Retail Sales MM Sep -0.7%, 0.60%-prev * GB Oct R. Sales +0.8% m/m, +4.3% y/y vs prev -0.4%/+2.3% rvsd. 0.3%/3.8% exp * GB Nov CBI Trends - Orders +3 vs prev -6. -6 exp * DE Oct Prod px -0/2% m/m, -1.0% y/y vs prev 0.0%/-1.0%. -0.2%/-0.9% exp * DE Nov Markit Mfg flash PMI 50.0 vs prev 51.4. 51.5 exp * DE Nov Markit Service flash PMI 52.1 vs prev 54.4. 54.5 exp * DE Nov Markit Comp flash PMI 52.1 vs prev 53.9 * EZ Nov Markit Mfg flash PMI 50.4 vs prev 50.6. 50.8 exp * EZ Nov Markit Services flash PMI 51.3 vs prev 52.3. 52.4 exp * EZ Nov Markit Comp flash PMI 51.4 vs prev 52.1. 52.3 exp Themes * Main theme across asset markets Thursday was relatively quiet consolidation - as the market by and large ignored some strong US data - which contrasted weaker than expected MFG data out of the EZ and slightly disappointing China MFG data. * The relentless move higher in USD/JPY took a breather during the US session after the pairing topped out at 118.98 late Asia/early Europe when option related selling ahead of a 119.00 barrier capped. * USD/JPY slid all the way back to 117.74 when EUR/JPY selling/profit taking gave the JPY a broad lift. * USD/JPY last traded at 118.01 - barely changed from Wednesday’s close. * Weaker than expected EZ Flash MFG PMI sent German bund yields lower and took some of the shine off EUR, but it still managed to hold up well against USD. * EUR/USD eased to 1.2505 at one stage after weaker EZ Flash PMI - but rebounded to be around 1.2550 late in the US session - unchanged from Thursday’s close. * The markets appeared to ignore the slightly higher than expected US CPI data, which is surprising given the fact the Fed doves are focusing on low inflation. * Despite core-CPI coming in at 0.20% vs expectations of plus 0.10% - USD was unchanged against EUR and JPY and actually lost ground against AUD, CAD and NZD. * The market also appeared to ignore US Existing Home Sales which came in better than expected - rising at its fastest pace in a year and the Philly Fed number far exceeded expectations - growing at its fastest pace in around 20 years. The exception was slightly worse than expected US weekly jobless claims. * USD Treasury yields failed to get a lift from the US data and instead followed the lead from German Bunds. * The weaker EZ PMI data pushed the 10-yr German Bund yield down to 0.80% from 0.84%. 10-yr US Treasury yield last traded at 2.34% down 1bp from Wednesday’s close and the 2-yr Treasury yield was trading one BP lower at 0.51%. * Commodity/risk currencies bounced back from lows after getting some support from a steady Wall St and the fact that some key commodities stopped falling. * AUD/USD last traded at 0.8630 up 0.15% from Wednesday’s close and 0.8% higher than the intra-day low at 0.8566. NZD/USD was trading at 0.7873 up 0.25% from Wednesday’s close and USD/CAD was down 0.3% at 1.1304. * Gold reacted to the hotter than expected US CPI data and rose 1.0% to 1194.50. NYMEX Crude rallied 1.3% on speculation OPEC might cut output; Iron Ore held steady at 70.00 while NY copper continued its choppy price action and was down 0.3% late in the US session. Wrap-up Quiet consolidation took over on Thursday. It is interesting to note that USD, Wall Street and UST yields failed to get a boost from stronger than expected US data. The likely explanation is that market positioning is at fairly extreme levels and preventing follow-through moves when data supports the entrenched positions. If that is the case - then you would have to conclude the USD; Wall St and UST yields are vulnerable of any US negative news. This may be especially true given that next week is a holiday week in the US with the Thanksgiving holiday on Thursday thinning out the markets both before and after the big day.
If the USD does start to correct lower against JPY and EUR it should provide excellent USD buying opportunities - as the fundament backdrop and namely the divergent central bank expectations should give strong support on any dip.
There was some speculation in the US market that the recent steep falls in some of the key commodities have been a bit too extreme and ready to correct higher. Iron ore and crude oil have been particularly hard hit and the freefall halted over the past 24 hours. If gold, crude and iron ore do manage to steady and correct higher it should provide support to commodity currencies and the AUD in particular. Risk appetite is fairly healthy and the VIX index is trading at levels that should support the carry trade. AUD and NZD should be attractive for carry trade investors - especially with the GPIF reallocations taking place and speculation that the SNB might be diversifying some of the huge amount of EUR they have been purchasing to defend the EUR/CHF floor into currencies such as the AUD. AUD/USD still looks to me like it is comfortable within the 0.85/0.90 range for the time being.
It should be a quiet day in Asia with no data and in fact there isn’t any noted data out of the US on Friday either. The keys will be the reaction in Tokyo to the fall from the highs in USD/JPY and price action in Nikkei and AXJ markets will likely provide some minor directional clues. John.Noonan@thomsonreuters.com ASIAN CURRENCY OUTLOOK USD/AXJ traded lower offshore on Thursday as consolidation took over in major traded pairs. USD/JPY went within a whisker of 119 only to fall back 1.0% to 117.74 as players locked in profits. This came despite stronger than expected US data with extreme positioning (long USD) blamed on the pullback. Quiet day ahead expected to close out the week with only 2nd tier data on the calendar. USD/SGD is back trading below 1.30 after yesterdays (suggested) bout of intervention while other USD/AXJ remain elevated through the NDFs. KRW NDFs suggest an 1111 OTC open which will look attractive to the export sector. USD/KRW traded an 1109.5-1117.1 range in Asia on Thursday; last at 1115.1. The Kospi closed down 0.45%. USD/SGD traded a 1.3009-1.3102 range in Asia on Thursday; last at 1.3021. The Straits Times closed down 0.6%. USD/MYR traded a 3.3550-3.3680 range in Asia on Thursday; last at 3.3650. The KLCI closed down 0.1%. USD/IDR traded a 12144-12180 range in Asia on Thursday; last at 12170. The Jakarta Interbank Spot Dollar Rate (JISDOR) was set at 12161. The IDX Composite closed down 0.7%. USD/PHP traded a 45.07-15 range in Asia on Thursday; last at 45.07. The PSE index closed down 0.0%. USD/THB traded a 32.815-88 range in Asia on Thursday; last at 32.845. The Set closed down 0.56%. USD/TWD traded a 30.895-957 range in Asia on Thursday; last at 30.95. The Taiex closed up 1.3%. USD/CNY was set in Asia on Thursday at 6.1417 slightly higher than the previous 6.1397 fix. OTC USD/CNY traded a 6.1214-6.1259 range; last at 6.1245. OTC USD/CNH last at 6.1270 - range 6.1236-6.1302. The 1-yr NDF was last quoted in Asia at 6.2540-6.2555. The Shanghai Composite closed up 0.1%. USD/INR traded a 61.93-62.22 range in Asia on Thursday; last at 61.95. The Sensex closed up 0.1%. Economic Data Releases (GMT) 21 Nov 07:30 TH Currency Swaps 21 Nov 07:30 TH Forex Reserves 21 Nov 09:00 MY CPI 21 Nov 09:00 MY Reserves 21 Nov 11:30 IN FX Reserves Looking Ahead - Events, Other Releases (GMT) No Significant events A closer look at the equity market * European markets were generally lower on Thursday, as the sluggish lead from Asia along with weaker EZ PMI data weighed. * The London FTSE eased 0.26% with a 2% fall in the FT Mining Index dragging the price lower. German DAX edged up 0.1%; French CAC fell 0.75%; Milan closed 0.9% lower and the Spanish IBEX slid 1.6%. * Wall Street was flat to lower for part of the morning before getting a lift from better than expected US data and a rally in Apple shares. A rally in some of the beaten down energy sector also helped push the market back in the black - with both the Dow and S&P closing at fresh all-time highs. * The VIX index closed at 13.70 down slightly from Wednesday’s close at 13.96. * The MSCI Latam Equity Index was up 0.24% late in the session. A closer look at the commodity market * Gold reacted to the hotter than expected US CPI data and rose 1.0% to 1194.50. NYMEX Crude rallied 1.3% on speculation OPEC might cut output; Iron Ore held steady at 70.00 while NY copper continued its choppy price action and was down 0.3% late in the US session. A closer look at the fixed interest market * EZ bond yields eased on Thursday, as weaker EZ PMI data impacted price action. * The 10-yr Spanish bond yield eased 3bps to 2.10%; the 10-yer Italian bond yield eased 3bps to 2.29%; the 10-yr German Bund yield eased 4bps to 0.80% and the 10-yr UK Gilt yield fell 5bps to 2.09%. * USD Treasury yields failed to get a lift from the US data and instead followed the lead from German Bunds. * The weaker EZ PMI data pushed the 10-year German Bund yield down to 0.80% from 0.84%. Late in the US session the 10-year US Treasury yield was trading at 2.33% down 2bps from Wednesday’s close and the 2-yr Treasury yield was trading 2bps lower at 0.50% OVERNIGHT RANGES---------------------------INTRADAY RANGES -- Close 2200GMT NDFS OPEN HIGH LOW LAST VOL CURRENCY HIGH LOW CLOSE IDR 12190 12175 12150 12150-12170 N/A USD/JPY 118.98 117.74 118.20 INR 62.37 62.26 62.16 62.15-17 N/A EUR/USD 1.2575 1.2505 1.2539 KRW 1116.5 1116.5 1112 1111.5-1112 N/A EUR/JPY 149.12 147.90 148.27 MYR 3.3755 3.3810 3.3710 3.3720-40 N/A GBP/USD 1.5737 1.5632 1.5694 PHP 45.14 45.17 45.12 45.12-14 N/A USD/CAD 1.1369 1.1293 1.1305 TWD 30.96 30.93 30.90 30.89-91 N/A AUD/USD 0.8641 0.8566 0.8618 CNY 1-mth 6.1460 6.1450 6.1450-70 NZD/USD 0.7883 0.7807 0.7866 CNY 6-mth No Trades 6.1910-30 USD/SGD 1.3102 1.2992 1.2999 CNY 1-yr No Trades 6.2500-20 USD/THB 32.88 32.785 32.80 Equities Close Change %Change UST(Yields) Close Previous DJIA 17719 +33 +0.19 10-year 2.34% 2.36% S&P 500 2053 +4 +0.21 2-year 0.51% 0.52% NASDAQ 4702 +26 +0.56 30-year 3.06% 3.08% FTSE 6679 -18 -0.26 Spot Gold($) 1193.90 1182.30 DAX 9484 +11 +0.12 Nymex 76.29 74.41 Nikkei 17301 +12 +0.07 Brent 79.86 78.20
Reporting by John Noonan and Peter Whitley