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23 October 2013
Fixed Income Research

The Global Macro Pulse
Overnight Price Action*
A bounce of profit taking and concerns on China big banks’ debt write-offs
caused heavy equity selloffs. The Nikkei reverted to a 1% loss as USDJPY
dipped to 97.44. Shanghai and Shenzhen composites have fallen 1% to 2%.
Kospi is now down 0.7% and S&P futures are off 0.2%.
AUD spiked to a high of 0.975 following higher-than-expected inflation but has
since been sold down to 0.967. EUR held onto gains at 1.378 but upside
momentum has waned. Most Asia FX has rallied on the open but has since
pared those gains. IDR appeared to run into BI resistance around 11300 levels
and BoK continued to be seen. USDINR is now trading at 61.28, USDMYR at
3.156 and USDKRW at 1057.
In rates, China’s 7 day repo rate has spiked 44bps higher to 4.02%. US 10y
yield took another small dip to 2.49%. Asian yields largely followed the US
lower.
(*) Prices are taken as of noon SGT.

What Happened Overnight
Big China banks tripled debt write-offs - Bloomberg
 Bloomberg reported China’s biggest banks tripled the amount of bad loans
written off in the first half, cleaning up their books ahead of what may be a
fresh wave of defaults. Erasing the worst of the bad debts may allow banks to
mitigate a surge in nonperforming-loan ratios amid rising defaults in the
world’s second-largest economy. China has eased rules for writing off debt to
small businesses since 2010 and policy makers are pushing lenders to
increase risk buffers following an unprecedented credit boom that began in
2009.

Australia’s inflation surprised strong
 Australia’s inflation accelerated to 1.2%qoq in the third quarter of 2013 more
than median forecast of 0.8% and previous 0.4% in 2Q. In yoy terms, CPI
rose 2.2% in 3Q. The trimmed mean gauge and weighted median – RBA
preferred measures, rose 0.7%qoq and 0.6%qoq respectively, the former a
touch above consensus, while the latter was in line.
 Separately, Australia’s conference board leading index dropped 0.2%mom in
August from revised 0.2% gain in July. DEWR skilled vacancies gained
0.5%mom in September narrowed from revised 0.6% rise the previous month.

-

CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS

BEYOND INFORMATION®
Client-Driven Solutions, Insights, and Access

23 October 2013

 Bloomberg reported that Australian Treasurer Joe Hockey will inject A$8.8bn ($8.5bn)
into the central bank’s depleted reserve fund, increasing its flexibility to tackle renewed
currency strength. Hockey said that this injection of funds puts beyond any doubt the
Reserve Bank’s continued ability to perform its core monetary policy and foreign
exchange functions, in an environment of heightened financial market volatility

Indonesia mining at risk over export ban - FT
 Indonesia’s mining industry will collapse if the government moves ahead with a planned
ban on exports of raw minerals, the country’s chamber of commerce has warned.
 The southeast Asian nation is set to implement a law prohibiting the export of
unprocessed metals as part of a drive to refine the ores and potentially generate higher
margins. Mining companies and independent economists are critical, arguing that at
current depressed global prices for both raw and refined minerals, it is not a financially
viable option in infrastructure- and energy-poor Indonesia, especially with no
commitment to invest from the government.

Philippines President Aquino vows to fulfill pledges of growth and
curbing corruption
 Philippine President Benigno Aquino promised to fulfill his administration’s promise of
sustaining economic growth and curbing corruption in a speech in Manila. Good
governance led to savings that boosted fiscal strength while “stimulus package” is a
factor that helped spur growth, Aquino says.

China extends RQFII to Singapore
 MAS announced yesterday that China extended its Renminbi Qualified Foreign
Institutional Investor (RQFII) programme to Singapore, with an aggregate quota of RMB
50 billion. This will allow qualified Singapore-based institutional investors to channel
offshore RMB from Singapore into China’s securities markets and issue RMB
investment products. In addition, China and Singapore will introduce direct currency
trading between the Chinese Yuan and Singapore dollar.
 This followed similar deals with the UK last week, and is part of China’s effort to further
internationalize the renminbi.

What to Watch Today
US: Import Price Index, FHFA Index, Buyback
 The market is looking for Import Prices to be up 0.2% in September. Consensus for the
FHFA House Price Index is a 0.8% increase in August.
 We calculate a purchase of $3.3bn in the Fed’s 7y-10y operation, translating to a
reduction in 10y equivalent supply worth $2.8bn.
 Yesterday’s soft September employment report and the uncertain outlook for the
“government shutdown hampered” October reading have caused the market to push its
tapering expectations into 1Q 2014. We find it difficult to see what could meaningfully
derail the recent EM FX rally and prefer to pick up carry into year-end.

Euro Area: AQR Details, Confidence, German Supply


The Global Macro Pulse

The ECB should announce the modalities of its Asset Quality Review (AQR) today. We
have published two reports (here and here) ahead of this announcement. EU heads of
state will also meet on Thursday and Friday to possibly introduce measures to support
lending to SMEs and work further on reinforcing EMU.

2

23 October 2013

 We expect French Business Confidence to go back to 98 in October, after a slight
decline last month, printing at 97 in September. Our view is substantially in line with the
market, which expects a slow but safe expansion. Business Confidence will also be out
today in Belgium, and we expect a moderate increase from -6.7 last month to -5.9 in
October. Although we do not expect a strong printing, the euro area consumer
confidence is likely to improve again to -14.5 in October, in our view, from -14.9 last
month. This would be the highest level since July 2011.
 European supply is very light this week with only one major auction of the 30y Bund for
€2bn today. We find this sector rich versus the UK. In the same publication we also
suggested buying this bond on ASW, targeting 5 bp of outperformance, of which ~2 bp
has already been achieved. Although we still see some room for further widening and
like this position as a carry trade, 31s-40s are now the cheapest sector versus swaps.
 We are near-term bullish EUR, given likely delayed Fed tapering, soft US payrolls, and
favorable EUR momentum (see here).

UK: BoE Minutes
 The Bank of England minutes are likely to contain a unanimous vote on unchanged
policy, as with last month, and may be constructive on the economic data. Following
comments from Bean yesterday on the consequences of nearing the 7%
unemployment “threshold not trigger,” we would be interested to see any official
discussion of the exit strategy from current forward guidance.
 We anticipate sterling depreciating over the coming months with UK data surprises
turning (see here), although the UK’s solid economic performance remains supportive.

Canada: Rate Decision
 We expect no change in rates and policy guidance (in line with consensus), but the
BoC should have a more dovish short-run economic outlook. While we remain
fundamentally bearish on CAD at current levels, we think the weak USD trend will
dominate price action in the near term, resulting in neutral USDCAD price action.

South Africa: Inflation, Budget Statement
 The MTBPS release is a significant near-term risk event, in our view (see here). We

expect the National Treasury to raise its FY2013-FY2014 and FY2014-FY2015
budget deficit targets to 5.3% and 4.6% of GDP, respectively (from 4.6% and 3.9%
prior) and to lower its 2013 and 2014 GDP growth estimates to 2.1% yoy and 3.1%
yoy, respectively (from 2.7% and 3.5% prior). Lastly, we expect inflation to drop
from 6.4% yoy to 5.8% in September, below consensus for a 6% reading.
 Though we think EM FX will remain supported in the near term thanks to the
prospect of delayed Fed tapering, the MTBPS is a source of uncertainty. We are
neutral on USDZAR at current levels and would expect it to lag its EM peers.

Turkey: Rate Decision
 Our economist expects all three key policy rates to remain on hold, in line with
consensus. As the central bank appears rather content with its current policy setting
and the exchange rate level, changes to other tools, such as reserve requirements, are
not likely, in our view.

 We remain bearish on the lira, but likely low volatility in US rates for the time being
may provide the currency with some respite.

The Global Macro Pulse

3

23 October 2013

Daily Calendar
Significant Events
Previous
Wednesday, 23 October
DM
FRA Business Confidence (Oct)
97
US House Price Index (Aug)
1.0%
US Import Price Index (Sep)
0.0%
CAN BoC Rate Decision
1.00%
UK BoE Minutes
BEL Leading Indicator (Oct)
-6.7
Euro Area Consumer Confidence (Oct)
-14.9
German State Treasury sells Bund 2.5% Jul-2044 (€2.0 bn)
State Treasury buys 7-10Y ($2.75-3.5 bn)
EM EMERGING ASIA
Malaysia: CPI, y/y (Sep)
1.9%
Singapore: CPI, y/y (Sep)
2.0%
Taiwan: IP, y/y (Sep)
-0.7%
EEMEA
South Africa: CPI Core, y/y (Sep)
5.1%
South Africa: CPI Core, m/m (Sep)
0.2%
South Africa: CPI, y/y (Sep)
6.4%
South Africa: CPI, m/m (Sep)
0.3%
South Africa: Medium Term Budget Policy
Statement
Turkey: Monetary Policy Meeting,
4.50%
LATAM
Brazil: FX Flows – Central Bank, US$
-1.7B

Median

CS Est.

98
0.8%
0.2%
1.00%

98
1.0%

-6.2
-14.5

-5.9
-14.5

2.5%
2.0%
-0.45%

2.6%
1.7%
0.2%

5.3%
0.4%
5.9%
0.4%

5.8%
0.3%

4.50%

4.50%

Comment

-2.2B

Abbreviations: wda (work day adjusted); sa (seasonally adjusted); nsa (not seasonally adjusted); saar (seasonally adjusted, annualized rate); * Credit Suisse estimates; ** on that date or before; *** on that date or after. In local currency
if not otherwise stated
Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service

The Global Macro Pulse

5


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