Couple of interesting notes on China overnight…
USD/ASIA is a fair bit higher after poor AUD jobs data hurt risk, USDCNY unch tho
The 1st story below getting a lot of attention..
1) EU business executives were told in the last several weeks by Chinese officials that the yuan will achieve “full convertibility” by 2015, EU Chamber of Commerce in China President Davide Cucino said. {http://bit.ly/rntpyW} – So a lot quicker than expected
2) Three Chinese provinces are getting ready to issue bonds directly instead of via the Ministry of Finance or through separate financing vehicles, an official newspaper reported on Thursday, the first step toward the creation of a municipal bond market. That issue has come to the fore in recent months, as worries mount over risks from the roughly 10.7 trillion yuan ($1.65 trillion) in debt local governments have racked up {http://reut.rs/nV8Geu} – HSBC’s Hongbin was talking about this recently
3) China on Thursday will give its formal support for London to become an offshore trading centre for the yuan, the FT said, a move that would tap into the city’s position as a major currency and commodities trading hub.
UK Inst of Directors calling for immediate QE.
Busy day ahead with TRICHET too.
RE CNY options trader comment
‘Some flow overnight positioning for RMB appreciation in both CNY and CNH
I think we are all of the opinion that a large one-off reval is not on the table and so the upside can be capped to some extend
To achieve the best payoff ratio, 1:2 spreads look best however I give a number of examples here
CNY 3mth 6.3580 ndf
6.35 v 6.28 on 1:1, 2.45 and 2.35 vol respectively, 217.6 pips
6.35 v 6.28 on 1:2, 145.4 pips, 2.45 flat vol, 4.81 max payout
6.35 v 6.29 v 6.23 on 1:2:1, 141.7 pips, vols are 2.45, 2.45, 2.85
CNH 3mth 6.3585 outright (spot 6.3620, sw -35)
6.35 v 6.28 on 1:1, 2.35 and 2.30 vol respectively, 205.7 pips
6.35 v 6.28 on 1:2, 159.6 pips, 2.40 and 2.3 vol, 4.38 max payout
6.35 v 6.29 v 6.23 on 1:2:1, 148.6 pips, vols are 2.45, 2.35, 2.80
CNH looks better for outright vol purchase but since the smile is smaller than CNY, 1:2 and fly spreads dont look as attractive
Additionally, CNH looks better and better the longer the tenor.
USD/Asia Run
USDKRW 1076.5 (Wed am 1073.5)
USDINR 46.38 (46.17)
USDPHP 42.37 (42.21)
USDCNY1y 6.2940 (6.2905)
USDIDR 8575 (8585)
USDMYR 2.9925 (2.9875)
USDTWD 29.06 (29.04)
USDSGD 1.2090 (1.2080)
HSBC Global Research