News and markets
Cyprus was downgraded by Moody’s yesterday to junk status and quickly asked the EU for a bailout. The country has just four days to raise the 1.8bn EUR needed to bail out the second largest bank in Cyprus who has suffered big losses at the hands of the Greek bonds. Fitch estimates that the recapitalization of all the Cypriot banks will cost 4bn, or 23pct of GDP. Luckily the sums to bail out Cyprus is small and won’t bother anyone.
The Greek FinMin has resigned after less than a week in the seat, due to health reasons (one wag on the desk here has suggested that a quick look at the Greek accounts would be enough to give anyone health problems).
Moody’s downgraded 28 Spanish banks late last night.
Japan has just now passed the sales tax bill in the lower house, this is the bill to increase sales tax from 5 to 10 pct by 2015. It will now go to the upper house who are expected to approve the bill with no problems.
This collection of recent news is of minor importance and the market has shrugged it off. More importantly, last weeks news (good Greek election and Twist extension) failed to boost risk at all. So it’s difficult to imagine risk-on still : we’re going sideways I think until the EU summit at the end of the week and perhaps for longer. Expectations for the EU summit are appropriately low as I said yesterday.
Today the moves in spot have been small in Asia. In the majors The only real mover was the USDJPY which fell to 79.43 around noon and then has gone higher to 79.70. AXJ is little changed as well. USDPHP opened lower at 42.50 and has stayed there all session, USDKRW is 3 won lower during the day at 1158.50 and that’s about as exciting as FX gets today.
Stocks in Asia are mixed with no large movers. The SnP future has bounced a tiny amount to 1310 after a decent fall in NY yesterday.
Data so far,
We had Filipino trade and budget data but this is very erratic and ignored by the market. And we had Singapore IP, the yoy number was 6.6%, above expectations.
Later on: we have HK trade numbers, UK and Spanish government spending data and Hungarian interest rates (NC expected from the MNB). Then from the US we have Home prices, consumer confidence and the Richmond Fed survey.
Vols
CNY vols lower, nothing exciting in the others. CNY vols have been smacked today. The 6m was given on the bid at 2.05 in 150 at lunchtime today, down from 2.1/2.35 yesterday. 1y has been given and offered on at 2.5 on the back of that, it was 2.55/2.7 first thing this morning. RRs and flies have gone lower with the atm as well today, the 1y 25d RR is 0.8/1.2 now.
Vols in the longer dates are very close to the lowest level in years: in early 2007 the low print was 2.35 for the 1y and that was the lowest every seen since CNY started moving again in 2005. 10d RR are still holding up for now, I don’t think that will last forever though.
With very low vol and still high 10d skew, USD call spreads look attractive. A 1y 6.50 / 7.25 USD call spread costs just 0.355% (NDF ref 6.4195). This is worth taking a look for anyone who is worried about a China slowdown.
Other AXJ vols are very slightly lower after the CNY vol move. Major vols are almost unchanged across the board. AUD vols which went up yesterday with spot below parity have calmed down again with spot above the figure. 1m AUD is 11.35 mid now
NATIXIS