A high degree of uncertainty remains- that’s a given.
EURO
to trade sideways with a slight bearish tone until further news.
The group believes potential redemption demand has led to risk being widely reduced and cash being held. This is waiting in the wings to be reinvested as and when calmness and clarity return.
The favoured trades in USD/ASIA would be to BUY KRW, CNH and SGD as and when markets revert to a pro risk environment.
The group remains wary of IDR given BI Deputy Governor being under investigation
The Group spoke about possible ‘Game Changing’ news / events which consisted of the following in various degrees.
More effective Europe. EFSF Leveraging, E Bonds/Bills, Any move towards greater Political union – Greek default / restructuring. ie. Market is waiting for 50% .. Give the market what it needs to move on.
Homeland Investment Act 2. A repeat of the Tax window for USD repatriation of foreign earnings could lead to a pick up in US confidence data and Growth expectations as $’s are put to work.
China Currency Bill being passed in US Houses. Could lead to potential ‘tit for tat’ measures which would impact on Globalisation of World Economy and a return to the bad old days of trade wars
We spoke about ECB and BOE meetings later in the week. Trading like to own GBP believing that we will not see the QE that the market has priced in at the upcoming MPC . This is based on a number of reasons (1) a bounce back in UK PMI services from the previous riot affected number (2) UK Inflation is continuing higher and we see it hitting close to 5% in coming months (3) The committee would most likely wish to wait and see the data in the November inflation report before additional QE (4) A growing rhetorical move by Governments to tackle weak economies by fiscal measures. For the ECB we expect 25bps where as possibly the market is looking for greater and believe any rhetorical tone from the QA would undoubtedly be supportive
Gold and Silver positioning is very light and we remain bullish and LONG on both. Silver positioning is the lightest since trading at $9. – Any dip has seen strong demand from the Sovereign and Physical sides of the client base – China has gone from a 300 tonne producer to a 160 tonne importer of XAU in a little over 3 years. We expect this trend to remain and continue to underpin demand. – Shanghai premium trading at $20bx continues to support above point.
HSBC Global Research