Merkel strong statement against Eurobonds yesterday damaged Spanish+Italian bonds a lot but broader risk sentiment survived largely unchanged. It’s interesting to see these bonds disconnect from other risk measures and I wonder how long it can go on for. A few days I guess, but I have to think that if Italy and Spain are in trouble then that spells trouble for Europe and the world as well. These countries are not Cyprus-sized and cannot be ignored.
Spanish retail sales and Italian business confidence are later today. Brace yourselves.
News from Asia:
CNH: Reuters has reported that there will be “further development” of the CNH market in HK announced to coincide with the 15th anniversary of the handover. Also dual listings of ETFs (in HK and mainland) are to be promoted, and HK based banks will be allowed to set up consumer financing companies in Guangdong. Apple newspaper (HK and Taiwan Chinese language paper) has said that the further development is to be that non-HK individuals will have no size limits for CNH purchases in HK (although the current upper limit of 20k CNH will remain for HK residents). Firstly this means faster inflows into CNH when the investment climate is good, second it means that USDCNH and onshore-USDCNY will stick even closer together as mainland arbitragers can now trade in bigger (theoretically unlimited) size if the two ever stray out of line.
INR: In India FinMin Mukherjee has resigned to run for president, PM Singh will take the FinMin portfolio until a successor is named.
JPY: After the vote on consumption tax passed yesterday, there was some worry that dissenters in the ruling party led by ex-party leader Ozawa would defect, perhaps triggering early elections. The news today is that Ozawa will stay with the DPJ which will please the markets. The yen is unchanged but JGBs are a bit stronger today, 10y yields testing the 0.804% low from last week.
NZD: Yesterday the NZ FinMin named Graeme Wheeler as the next RBNZ governor, to take over from Bollard at the end of his term this September. http://www.rbnz.govt.nz/news/2012/4838588.html
Not much movement to report in FX in Asia time. All the majors have gone sideways. AXJ currencies are mixed. USDPHP has gone down early in the morning but ran into BSP buying at 42.30 which halted the move. USDINR has gone up 15 paise to 57.17 and the market’s eyes are on the all time high of 57.33 seen last Friday.
SnP futures are unchanged today at 1315. Asian stocks are in the green with the Kospi at flat and the Hang Seng at +1.1% and the others in the middle. Commodities have had a small bounce in the early part of this week but the medium term trend is still down and it’s still well in play.
No exciting data so far. Later we have German CPI and the PIGS items mentioned above.
FX option vols
Very little change in the majors today. AXJ vols are softer in the main. Today the biggest movers are SGD and MYR which are 0.3 lower in the 1m to 6.55 and 7.3. TWD vols are also continuing their softer move today and 1m IDR has just been clattered at 8.0 which is the lowest in a month.
Looking at the medium term trends, it’s very much the same across all currencies. In the majors the ATM went lower first and the RR are still following them down. A special mention must go to EURCHF where the 3m atm has gone from 7 to 3.5 and the 3m RR has halved from 4.4 to 2.2.
In the emergings, all the vols have been coming lower and the moved is continuing. The exceptions are INR and EURCZK which have stayed more supported than the others. USDTRY has been falling the fastest over the past couple of weeks despite the Syrian tensions.
When it comes to the Emerging RRs, the BRL skew which was the highest by far for most of this year has returned to much more normal levels. KRW and TRY are the two which are still very high, but in both of these it is the back date RRs that are really large, the front dates have moderated a lot leading to steep RR curves. Latest rates for 1y RR are 5.6 mid for TRY and 5.75 for KRW.
Vol curves have steepened nearly everywhere with the relative calm of the past 2 or 3 weeks. The steepest vol curves are EURCHF and USDKRW, the difference between 1m and 1y KRW is 4.4 vols and that is the biggest ever. BRL, RUB and EURCZK at the other end of the scale are virtually flat. All the majors (save EURCHF) are upwards sloping in a moderate and sensible manner and I don’t see much opportunity there.
NATIXIS