As it happened
- The Asian morning en bref: The day opened in Asia with S&P futures down more than 2%, the local bourses all deep in the red, and EUR moved from 1.4100 levels down to 1.4039. Two headlines hit the wires: First, an article in the AFR suggested that the rating of local Australian banks might be cut given their dependence on wholesale funding; and shortly after this came in, CHINA’S ECONOMIC GROWTH MAY FALL BELOW 9 PERCENT IN 2012 -SAFE OFFICIAL. This caused a small sell off in the Aussie but was dismissed when the dust settled again after the storm.
- In Focus – AUD and the RBA: As expected the RBA kept rates on hold at 4.75%. The ensuing rhetoric from the statement was largely the same as before, highlighting concerns on inflation, caution on strong AUD and confidence in Chinese growth. There was more Aussie data, with exports contributing towards the Australian GDP print of -0.5%, significantly lower than the +0.1% expected; This probably implies that the coal production has still not reach its pre-flood levels and may offset the strong inventories number we saw yesterday. Aussie fell from 1.0525 and took out stops just below 1.05 the figure, but the market was caught short and we squeezed back above 1.0535 levels.
- And an eye on USDAsia: USDAsia remains stuck in a range in spite of a much lower EURUSD. USDKRW dipped briefly below 1070 after Kospi regained its opening losses. In USDCNY, we saw a higher CNY fix at 6.3946. The USDCNY NDF curve opened slightly higher. Client were buyers in USDCNY NDFs all session. In USDSGD, real-money were huge sellers in spot. SNEER is at 2% above mid-point. Asian stock markets are mostly negative.
Today on the press
- WSJ: Infrastructure Likely Part Of Obama Jobs Push
http://online.wsj.com/article/SB10001424053111904900904576552820082030698.html
President Barack Obama signaled Monday he’ll propose a major infrastructure program and an extension of a payroll tax break in the jobs speech he planned to deliver Thursday before a joint session of Congress.
- Financial Review: S&P Threat To Downgrade Australia’s Banks
http://afr.com/p/business/financial_services/threat_to_downgrade_australia_banks_yn8XcyUAfH0RJ8Oosa6LNM
Australia’s major banks will fight to defend their AA credit ratings amid a controversial global review of bank ratings conducted by Standard & Poor’s.
- Bloomberg: Merkel To Tell CDU Greece Must Meet Conditions
http://www.bloomberg.com/news/2011-09-05/merkel-said-to-tell-cdu-members-that-greece-must-meet-conditions-for-aid.html
German Chancellor Angela Merkel told members of her Christian Democrats that Greece will not receive aid payments due this month unless it meets conditions of the rescue, two party officials said.
- FT: Fears Rise Again Over Europe Debt Crisis
http://www.ft.com/cms/s/0/4b983354-d7df-11e0-a5d9-00144feabdc0.html
German benchmark borrowing costs fell below 2 per cent to all-time lows while Italy’s shot up as worries about the eurozone debt crisis and the fragility of banks once more intensified.
- Telegraph: Sub-prime crisis returns to haunt banks with a £121bn lawsuit
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8743091/Sub-prime-crisis-returns-to-haunt-banks-with-a-121bn-lawsuit.html
Four years after the collapse of sub-prime mortgages turned a market that had been a matter of interest to just a couple of thousand highly paid traders and investors into the starting gun of a global financial meltdown, they are back and threatening to wreak new damage on the banking system.
The day ahead:
- From our Asian Trading
“We risk beating the same old drum again, but Europe continues to look weak and there is an increasing chance that Asia will not be insulated against downside risks in Europe. That said, we’re surprised by how orderly the moves in the single currency have been; i.e a steady grind lower as opposed to a sharp collapse. Thus, we are sceptical of being short Euros however, given that we have a lot of event risk from Europe, mainly the German constitutional court’s ruling on the Greek bailout. As a result we like squaring up short EURUSD positions ahead of important support at 1.4015 (200 day SMA)”.
Chart of the day : Safe-haven ranking
We look to this chart based on; 1) macroeconomic and political stability, 2) the solidity of the country’s balance sheet, 3) the size and liquidity of the domestic financial market, 4) the flexibility and convertibility of the currency, and 5) the resilience of the domestic economy to external shocks, as the changing environment is making us question the traditional safe havens. With challenges in the Eurozone and US unlikely to be any closer to resolution over the next year, we believe this is only the start of what may well be a recurring theme. CHF and gold naturally spring to the front of everyone’s mind – yet fears of bubbles and policy responses make these less of an ‘obvious’ choice than they might once have been.
Research:
- FX Insights: EURUSD our Central Case
There are many tail-risks to consider in the EUR outlook, but here we provide our central scenario. Most likely, a disorderly default in Greece is avoided and changes to the EFSF will be approved. That said, EFSF bond market intervention is unlikely to be effective given capacity constraints, hence even in our central scenario we are likely to see continued upward pressure on peripheral bond yields and generally rising risk premia. Moreover, given weakening central bank diversification flows to EUR, the impact on EURUSD should be greater than has been the case so far in 2011. While we reconsider our EURUSD forecasts, we do believe that at this point a year-end target of 1.30 looks more likely than 1.40.
http://www.easyforexnews.net/wp-content/uploads/2011/09/FX-Insights-EURUSD.pdf
- FX Insights: AUD: RBA policy meeting review
The RBA announcement from the September policy meeting, just released, showed an unchanged cash rate, as was largely expected. The statement itself was mildly more dovish than in August, but still mildly more hawkish than market expectations.
We continue to see the rate cuts priced this year (-86bp before today) as too aggressive. As a result, we are long AUD/NZD via a tactical trade recommendation from last week
http://www.easyforexnews.net/wp-content/uploads/2011/09/FX-Insights-RBA-Policy.pdf
- Ranking safe-haven Currencies
We have developed a detailed scorecard framework to objectively evaluate safe-haven characteristics. We base our analysis on five major criteria: 1) macroeconomic and political stability, 2) the solidity of the country’s balance sheet, 3) the size and liquidity of the domestic financial market, 4) the flexibility and convertibility of the currency, and 5) the resilience of the domestic economy to external shocks.
http://www.easyforexnews.net/wp-content/uploads/2011/09/Ranking-safe-haven-currencies.pdf
Nomura Holdings, Inc. group