Posts tagged 'FX'

This re-correlated world

ICYMI, RoRo — or risk on/ risk off — is apparently back.

It’s not quite at peak levels but that bane of interesting narrative, that supporter of the yen, that acronym of dubious origin is getting back up there:

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Central bank tightening risk, charted

From BofAML’s FX strategist Athanasios Vamvakidis, do click to enlarge:

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Did the G20 agree a currency accord and does it matter?

The first question is whether there was a lovely new, but secret, currency accord agreed at the G20 in Shanghai in February.

The answer is: Probably not. Read more

Irony and that JPY-equity correlation

Or, pictorially, what’s up with this?

And we mean apart from the whole “hey, we gave you negative rates why aren’t you giving us weaker yen?” thing as we’ve already spread plenty of pixels on a webpage about that.

It’s more about they strong negative correlation between the yen and equities on show in that chart. Read more

JP(wh)Y? revisited. And a break in the currency wars?

This post will be made up of two pieces. The first will try to explain why JPY continues to defy Japan’s negative rate-led demand for currency weakness. The second will add words to this picture from HSBC which proclaims a break in the (so-called, he adds hastily) currency wars, predicated mostly on said JPY strength:

At last sighting JPY was hovering at about Y108. That’s not good if you are the BoJ’s Kuroda or the overarching Abe, particularly because FX strength can beget more FX strength. The question is why did the yen start this slide: Read more

JP(wh)Y?

Kuroda et al might want to look away:

That’s the yen being “whacked to the lowest since October 2014″ (when the BoJ decided to extend its easing programme) in the words of Citi’s FX team. It’s now under Y109 having been at Y125 in June last year. Also from Citi: Read more

Was a weak euro last year’s necessity?

An important question for anyone who thinks the euro area needs to keep its currency weak to grab foreign demand. Or who thinks that’s what the ECB thinks, anyway.

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Just how volatile will June 23rd be for sterling?

By Giles Wilkes, normally found at Lex or writing leaders.

So on Wednesday 23rd March, three month implied volatility for the proud pound was 14.5 per cent, which is up a third from 11 per cent the day before.

For an options market maker, such a move in ‘vol’ is a pretty big deal: expected volatility in a market is the major factor driving prices, and being caught the wrong way on such a move would be enough to cause a fairly large loss. But that is not what happened.

The reason for the change in three month vol was rather more mundane. Read more

After the G20, FX intervention edition

“I don’t think this is a meeting where there will be some big decision,” said one G20 official who asked not to be identified, presumably not because he fears reprisal from an IMF which advocated a plan “for co-ordinated demand support using available fiscal space to boost public investment and complement structural reforms.”

So that’s probably that for now.

What about the FX bit? Read more

JPY pain, charted and extrapolated

By Nomura first, who are worried that Japan’s economy has taken a dangerous turn — what with GDP dropping at an annualised rate of 1.4 per cent in the fourth quarter and Abenomics being felt for a pulse:

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Governor Zhou: “The central bank is neither God nor magician that could just wipe the uncertainties out”

Which is sad, but at least he’s talking and talking at length.

Before we get to that though, it’s worth having a read of George Magnus and Eric Burroughs on Chinese capital outflows, reserves and the country’s ongoing FX trilemma — China cannot “pursue more than two of an independent monetary policy, a fixed exchange rate, and free capital movements simultaneously”. They’re good catch ups on where China is now and the prospects of a float, devaluation or increasing capital controls.

It’s also broadly what PBoC governor Zhou discussed, among other things, in a lengthy interview to Caixin over the last few days — after a long period silence — and a transcript of that interview is now pixelated and ready for your eyeballs.

We thought we’d aid that eyeballing and pick out some sections of the interview and put a summary of sorts near the bottom. It’s best to skip down to there if you’ve already read the full thing. The extracts are chunky, as was the interview — which you could maybe read as some 10,000 words of PBoC versus the speculators. Read more

What in the name of leverage ratios is going on?

It’s all a bit messy at the moment — European banks, Japanese banks post the BoJ’s move negative, er other stuff — but it’s not really clear what’s actually going on.

This seems like a decent list of possibilities, from Citi’s Steven Englander:

We think the following concerns are weighing on the market.

1. US economic fragility means there is no one to depreciate against

2. Too many simultaneous issues and policy coordination unlikely.

3. QE/negative rates have lost their financial market impact,

4. QE/negative rates have lost their economic impact

5. QE/negative rates are constrained by bank profits

But his colleague Matt King has a somewhat more involved, if not entirely separate, explanation for what he says is, at the surface, an orderly sell-off but which hides a number of indicators under “extreme stress”.

Basically, it’s all about bank balance sheets coming under pressure. Less basically, he suggests these dislocations “raise awkward questions about the entire narrative which led to the wave of post-crisis bank regulation.” Read more

Negativity all the way down

Not sure how many more pixels you’ll tolerate us spilling on the BoJ’s move negative, but this from Simon Derrick at Bank of New York Mellon seems worth your time. With our emphasis, and pars broken up for online readability:

Whether or not the BOJ’s decision was a direct reaction to the ECB’s decision to potentially push even further into negative territory doesn’t really matter. Indeed, it doesn’t even really matter whether or not the BOJ was trying to weaken the JPY by their move (in our opinion plausible deniability remains a key tool for central bankers).

What does matter is that four of the eight members of G8 (France, Germany, Italy and Japan) now have an official negative deposit rate while Canada continues to suffer the impact of collapsing oil prices (Russia, which has had its membership suspended, suffers from the same issue of course).

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The Plaza Accord, then and *cough* now?

Which leads us, naturally, to a partial Fed transcript from August 1985:  Read more

Rub falling, greater dollarisation risked, FX analysts speechless

Bank of Russia Governor Elvira Nabiullina is leaving it to the market to imagine when a ruble collapse will pose a threat to financial stability and force policy makers into action.

So far it hasn’t, and the currency is close to its “fundamental levels,” Nabiullina said in an interview on Wednesday. Other top officials also took the crisis in their stride, with President Vladimir Putin saying that changes in the exchange rate are actually opening up “additional opportunities” for some businesses.

- Bloomberg, Jan 21

- Markets, Jan 21 Read more

It’s all connected, CNY edition

From Societe Generale’s analysts over the weekend, with our emphasis, on the fallout from the weakening yuan on the European Central Bank, and why that might circle back (and back again):

Global currency markets have taken their cue from China and commodities, and the resulting shifts are causing something of a headache for the major central banks. Since the low of last spring, the euro has bounced back by just over 9% trade-weighted. Similar moves have been observed for the JPY and USD, with the bulk of depreciation coming from EM commodity currencies. Their status as funding currencies has even seen the euro and yen gain against the dollar in recent weeks

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Hi, my name’s Random Bank and I’ll be your financial server today (Updated)

Tips. The ultimate example of “unbundled” costs and discretionary performance-based income.

There are service staff who rely extensively on tips (waiting staff, bartenders, hairdressers, shoe-shiners, doormen, taxi drivers, hospitality staff, street entertainers) and then there are service staff which weirdly don’t (handymen, nurses, airline hostesses, Uber drivers, carers and a plethora of others).

So what to make of a fintech start-up, Xendpay, which would like to encourage discretionary tipping for foreign exchange services? Read more

The ECB is different (and should be treated as such)

We wrote — when talking about the ECB’s potential move to a tiered depo facility which would allow a deeper cut than expected into negative territory on Thursday – that Draghi was in the somewhat relaxed position of being able to follow where other central banks had gone before.

We were of course referring to the Swiss and Danish central banks, which are currently at -75bps versus the ECB’s -20bps and have in place versions of the tiered model being mooted for the ECB.

But… Nomura’s Jens Nordvig thinks we were being too casual in our comparison. The ECB needs to be analysed as its own central bank because: Read more

Your pending local currency-commodity downfall

Which came first the commodity fall or the local currency collapse? And, more importantly, how far through the commodity supply/ demand adjustment are we?

The suggestion here from SocGen’s Kit Juckes and friends is that the causality runs from commods to currencies and that there is still a lot of pain to come:

My colleague Michael Haigh has done a lot of work on the overall state of supply and demand in commodity markets, and he makes one very striking observation: For all the fall in the prices of many industrial and agricultural commodity prices in USD terms, the prices in the currency of the biggest producers have not necessarily fallen much. Sugar prices have fallen by over 8% this year in USD terms, but the Brazilian real has fallen by 29%. Copper prices have collapsed, down over 20%, but the Chilean peso is down 15% and trying hard to keep up. Gold is down 9%, but the South African rand has fallen by twice as much and in rand terms, the gold price is near its highs. The fall in iron ore prices (over 30%) is twice the fall by the Australian dollar, but you get the picture (Charts 1 and 2).

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Your updated guide to being an EM FX bull, now with bonus prayer

We might have to start an “x is less terrifying” series.

Consider this on EM FX…

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Asian reserve drawdowns, then vs now

Then being the ‘taper tantrum’ in 2013.

Now being the recent China devaluation episode that caught so much of EM FX in its backdraft.

From Goldman’s chief FX strategist Robin Brooks, and with our emphasis: Read more

Here’s relooking at Chinese FX reserves

Not so bad this month, particularly when you take into account expectations and the headline $94bn fall we saw in August.

From Nomura:

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It’s not the 1930s so…

Currency wars are either everywhere or nowhere. We know that much.

What we also probably know is that currency devaluations in today’s environment are indeed approaching beggar thy neighbour policy without commitments to be irresponsible and/ or supportive fiscal action.  Read more

Debunking quantitative tightening in one paragraph?

And here’s that paragraph, from JPM’s Niko Panigirtzoglou and team, with our emphasis:

  • First, we disagree with the description that FX reserve depletion is QE in reverse. This is because the FX reserve depletion that is happening currently is not an exogenous policy action but represents a policy reaction to capital flows out of EM. But the capital that leaves EM does not disappear from the financial system. In fact, the capital that flows out of EM could find its way back into DM bonds. For example three major manifestations of capital flowing out of EM are 1) the reduction of dollar denominated debt previously issued by EM corporates, 2) the accumulation of dollar deposits by domestic EM corporates or other entities who try to protect themselves against further dollar appreciation, and 3) the withdrawal of EM currency (e.g. Renminbi deposits) by foreign investors who in turn convert them back into dollar deposits.

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If something can’t go on forever, it won’t, China’s FX policy edition

From Barc on what’s happened since the PBoC got messy at band camp, devalued, and followed up with a “dirty peg”:

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China’s ongoing FX trilemma and its possible consequences

From UBS’s Tao Wang on what, post China’s surprise revaluation, is now an oft used phrase, the impossible trinity — AKA the corner China finds itself in:

The impossible trinity says that a country cannot simultaneously have an open capital account, independent monetary policy, and stable tightly managed exchange rate. Some academics (such as Hélène Rey) argue that since capital controls are no longer as effective in the current day world, complete monetary policy independence is still not possible without some degree of exchange rate flexibility, even without a fully open capital account – or impossibly duality.

Regardless of whether it is an impossible trinity or duality, the fact is that in recent years, as a result of substantial capital controls relaxation, China has found it increasingly difficult to manage independent monetary policy while simultaneously maintaining a fixed exchange rate.

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Of China’s “dirty peg” and spreading EM pain

Jim Reid at Deutsche assesses the damage so far. As he says, this has something of a taper tantrum feel to it but seperating out China from Fed fear is a tough job even if given “that the odds of a September hike are fading again (32% this morning, down 16% over the last 48 hours)” it seems “China and the impact on EM is the overriding driver”.

With our emphasis:

One of the big problems with China’s FX move is that although they’ve ‘only’ seen a 3% currency fall (in the onshore Yuan) since their announcement last week, others have subsequently followed suit either deliberately or via market [and oil based] pressure. The following countries have seen their currency depreciate at least 4% since last Monday (and using last night’s closing prices): Kazakhstan (leading the way with a huge 26% devaluation following the removal of the trading band), Russia, Ghana, Guinea, Colombia, Belarus, Turkey, Malaysia and Algeria. In fact, if we extended the analysis to include those that have seen at least a 3% depreciation then the number of countries hits 17 and unsurprisingly all sit in the EM bracket.

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We know what the euro is doing to Greece…

But, as the foreign press corp does its best to hurry some much needed euro into the Greek economy, we should also look at what Greece is doing to the euro.

Here’s Nomura’s head of FX, Jens Nordvig, on what to watch where the single, now more parlous, currency is concerned: Read more

Peru’s FX swappy central bank intervention

This is a snapshot of the Peruvian economy’s growing dependency on central bank intervention by way of BNP Paribas on Tuesday,

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Your brave euro

As SocGen’s Kit Juckes says, the main topic in currency markets may be the resilience of the euro in the face of the ongoing Greek tragedy (ed – no, sorry) comedy (ed- really now, no) thing.

I wouldn’t know. I’ve been on holidays.

But in case that’s true, here’s Nomura’s Jens Nordvig on why it might be holding up. Read more