Posts tagged 'FX'

EMageddon: the Socratic dialogue

The level of debate for a lot of money in emerging markets on Thursday must have been whether or not to hide under the desk with a bottle of bourbon. So, kudos to Olgay Buyukkayali and Tony Volpon, top EM strategists at Nomura, for standing back and raising the tone a little…

The bank’s published a debate between the two about the sell-off. Tony’s vaguely bearish and Olgay’s vaguely bullish. But that doesn’t do justice to what’s quite a nuanced debate on EM: Read more

Interest rate wars

That’s the new black according to Citi’s Steven Englander:

Since May 1 the median increase in 10-year local bond yields in 47 major EM and developed markets (DM) is 39bps (Figure 1). Among major EM economies (light blue) it is 83bps; among major DM (dark blue) economies it is 29bps. The US 10-year Treasury yield increase (red) is only at the median of developed economies and well below the overall median. In both EM and developed economies, the fat tail of rate increases is to the upside, so average increases are even higher. The paradox is that the run-up in US interest rates, which is arguably the primary driver of these global rate increases, is well below the average and median globally.

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Japan and the curious incident of the dog in the night-time

Header credit goes to UBS’s Paul Donovan, the source of the piece of Japanese skepticism that follows. He takes us first to Sherlock Holmes’ “Silver Blaze”:

Gregory: “Is there any other point to which you would wish to draw my attention?”

Holmes: “To the curious incident of the dog in the night-time.”

Gregory: “The dog did nothing in the night-time.”

Holmes: “That was the curious incident.”

A strong opening gambit, as yen tales go. Read more

USDJPY 100, eh?

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USD/JPwhy?

By Theo Casey, marketcolor

The loss of simple narratives in forex is something we are learning to deal with together. To continue navigating major and minor crosses we need to make complex narratives more digestible.

Consider dollar-yen. It’s behaving like the bought end of a carry trade. Read more

Nowotny on Draghi and negative rates: “purple monkey dishwasher”

From Reuters:

LONDON, May 3 (Reuters) 13.04 – The euro pared gains while German Bund futures edged up on Friday after European Central Bank policymaker Ewald Nowotny said the central bank was open-minded about taking deposit rates into negative territory.

Nowotny said he was “astonished” by the market’s reaction to his comments earlier in the day, when he said negative deposit rates were not relevant in the near term.

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The risk of yen reversal

The yen has gained back 2.4 per cent against the US dollar since it threatened but failed to break Y100 ahead of the most recent, and quiet, Bank of Japan meeting — the first since April 4, when QE on steroids was announced.

Now, we are not suggesting this is definitely the start of a yen correction — if we could predict FX moves for sure we’d be on a yacht, Japan isn’t lacking the political will to give it a further shot, this dip is small in context and we’ve seen its like before — but there is clearly a threat.

Simon Derrick, chief global markets strategist at Bank of New York Mellon, sent through a few thoughts which we think capture that threat quite nicely: Read more

The loss of simple narratives in FX

(Or ‘goldilocks syndrome’ if you’d prefer)

An existential cry has been sounded once again in the world of FX which has suddenly been reduced to trading short term signals in a fickle market. Shocking. Gone are the days of simple carry, Risk on-Risk off and easy reifying market stories. And it seems they are missed, almost as much as they were once bemoaned…

From HSBC’s ever excellent FX team: Read more

Stumbling JGBs

Something to keep an eye on (the respective reaction of the 6mth, 2-year, 5-year, 10-year and 30-year JGBs to the BoJ’s QE onslaught):

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Be excited, be, be excited: BoJ edition

Seemingly everybody is benefiting from the Bank of Japan’s decision to splash the cash. Peripheral bond yields in Europe have fallen and high-yielding carry targets such as Mexico and Brazil are being touted as destinations for Kuroda’s cash.

Where that cash ends up will in many ways define the success or failure of the Abe/ Kuroda push since what really matters is what happens after the cash has left the BoJ. Read more

The BoJ massive

Gloves off from Kuroda and everyone is very excited…

For those who need a rundown of what the BoJ actually did, here’s a summary from Nomura: Read more

Expectations reconsidered at the BoJ

Two charts for your morning consideration:

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Expectations management for the BoJ

We’ve used that kind of header before… but Abe is forcing us to crack it out again. From the FT on Tuesday:

Japanese Prime Minister Shinzo Abe has said that the 2 per cent inflation target he imposed on the Bank of Japan may not be reached within two years…

In an exchange with Seiji Maehara, an opposition politician and former economy minister, Mr Abe said the BoJ should not pursue the inflation target “at all costs”.

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Unlike the rest of the world’s central bankers, athletics aren’t Kuroda’s forte

He struggled as a young bureaucrat on a climb with officials and journalists up a 1,500-meter (4,900-foot) mountain in Nagano Prefecture, to the west of Tokyo, according to Utsumi, now president of Japan Credit Rating Agency Ltd. Kuroda “got exhausted and said he’d never do it again,” he said. “He’s not the sporty type.”

Metaphors aside we can ignore that but the rest of Bloomberg’s profile of the man set to take over at the Bank of Japan is worth a read. After all Kuroda has to convince the Japanese that Abenomics is for real now that much of the easy lifting has already been done. Read more

Breaking bad

Rising inflation expectations and a diving Great British Krona helped another leg downhill on Tuesday by dire production data.

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With great power etc

This does smack of desperation, doesn’t it? From the FT on Thursday morning:

Osborne will use his Budget on March 20 to reinforce his message of “fiscal conservatism and monetary activism” by clarifying how the government intends to use monetary policy to get the economy growing again.

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Don’t kill the old, pander to them

“Whatever we can”, you say? Encouraging words from BoJ governor nominee Kuroda over the weekend (even if comparisons with Mr Draghi are overblown). If Cullen Roche is correct, what happens in Japan over the next year or many could change the future of economic policy. So it’s worth spending a bit more time on what Kuroda’s “can” might actually be.

We’ve argued already that much of the low-hanging fruit of expectations and verbal intervention has already been plucked. Read more

Currency moves contextualised

That’s the euro down 0.4 per cent or so against the dollar and crossing the $1.30 mark. Sterling (aka the Great British Krona) is also continuing its torrid start to 2013, losing another 0.9 per cent against the dollar and touching $1.50. Read more

Shinzo Abe’s phaser

Gotta love a good contrarian yen call.

As we’ve written multiple times, the yen’s recent fall been based on policy which has yet to appear, namely on expectations of Abenomics. Japanese authorities have done an excellent job of short-term monetary fear-mongering, but as Gavyn Davies put it recently there is a severe risk that the international hedge funds which have been driving the decline in the yen might come to the conclusion that the emperor has no clothes. Read more

Ye olde Abenomics

All this has happened before and will happen again… at least, so hopes the Japanese government.

Current finance minister Taro Aso has been keen to channel the spirit of his 1930s equivalent Korekiyo Takahashi, whose polices are widely credited with pulling Japan out of the Showa Depression. It’s understandable. Read more

A dollar bully

Dear everyone, this article is based on a questionable premise: that the dollar is about to head off on another bull run. We know this may not happen. Thanks, us. Read more

A blinking red light

That’s Citi’s risk-warning signals beginning to spike over the past couple of weeks and especially over the last day or two. From Citi’s Steven Englander: Read more

A Minutes worth of sterling freefall [updated]

Here’s the dovish BoE minutes that started sterling sliding (click through for the pdf): Read more

Japanese investors, the AUD and everyone else

Japanese investors are a powerful bunch in world markets. For a microcosm of this, just look at Australia; Japan plays a big role here in debt and in turn, in currency; and it’s a market that has been very attractive to foreigners of late, keeping the currency stubbornly high regardless of price changes in the country’s key exported commodities. BUT, as with everything yen at the moment, there is a serious shift going on. Read more

Currency handbags at dawn [updated]

The currency war meme rumbles on as the G7 does its very best to avoid a coherent message amid arguments about whether drawing a distinction between “domestic objectives” that weaken a currency and just plain weakening it actually matters. Ho hum. Read more

The Draghi Rorschach test

“Oh, Hollande…” said Mario Draghi as the rest of us wondered if he had or hadn’t entered the supposed currency wars. Or if, in fact, the question was redundant.

The euro’s dive on Thursday was impressive and clearly the result of ECB president Draghi’s comments after the ECB’s rate setting meeting. But whether it was justified or not is very much contested. Read more

All’s fair in love and currency wars

Japan’s Masaaki Shirakawa gave notice on Tuesday that he would be leaving his post as governor of the Japanese central bank on March 19, three weeks earlier than slated.

Can we blame Shirakawa? His departure now coincides with that of two deputy BoJ governors who would be replaced by Abe-nominations (we resisted the urge to go for ‘Abominations’; it wasn’t easy.).

If Shirakawa had stuck around he presumably would have found himself the head of an increasingly mutinous court. Read more

Bye, bye RoRo

For US dollar pairs at least…

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Banker demonstrates willingness to wear tights to acquire paperweight of glory

Yes, dear readers, it is awards season. The time of year when the content of the most ignored slides in pitchbooks is decided upon. Even disclaimers may be read more, if only to discover if the poor, hapless, underslept and under-exercised analyst who wrote it remembered to do a find-and-replace for the previous client to whom the book was presented.

It has come to our attention that in this latest round, a couple of banks are taking notably different approaches to the Euromoney FX survey. And of course, we couldn’t resist taking a look at the methodology of the thing. Read more

This normalising world

From the Danish central bank:

Effective from 25 January 2013, Danmarks Nationalbank’s interest rate on certificates of deposit and the lending rate are increased by 0.10 percentage point. The discount rate and the current account rate are unchanged. Read more