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30 October 2013
Fixed Income Research

The Global Macro Pulse
Overnight Price Action*
The dollar rally continued in Asia, albeit with less momentum in the majors.
AUSDUSD dipped to a low of 0.9459, but popped back up to 0.9479. After
falling in New York trading, EURUSD is essentially flat to its Asian open at
1.3743 and USDJPY has stimilarly stabilized at 98.14 after its overnight rally.
USDKRW gapped higher at the open, traded up to a high of 1062.85, but has
retraced back down to 1060.74. In contrast the INR and MYR are about 0.3%
weaker against the USD today at 61.525 and 3.1551 respectively.
S&P futures are down 0.2% following the S&P 500’s 0.6% rise overnight.
However, the Nikkei is up 1.1%, spurred by yen weakness, the Shanghai Comp
is up 0.8% and the HSI has risen 0.9%. Kospi and the Taiex are basically flat.
The US 10yr Treasury yield has dropped 1.5bps to 2.4889% and JGB yields are
off 1.6bps at the 10yr tenor and 1.4bps at the 20yr. China’s 7-day repo rate rose
55bps to 5.55%, its highest level since the June spike in yields. This has pushed
front-end swap rates up about 6bps. Yields in most other EM Asia markets are
lower by 1 – 2bps.
(*) Prices are taken as of noon SGT.

What Happened Overnight
Troika not convinced social security bill can cover the fiscal gap
for Greece
 A bill aiming to trim Greece’s social security spending will not be enough to
cover next year’s fiscal gap, European sources told Kathimerini, as the
difference in opinion between Athens and the troika over how much austerity
will be needed next year looks set to intensify. Along with the across-theboard implementation of a unified public sector wage structure and several
other measures, the government hopes to produce €500mn of savings next
year. The troika, however, believes that much more will be needed, with the
fiscal gap likely to come in at around €2bn.

Italy’s GDP fell in 3Q, will contract 1.8% in 2013 - Istat
 Antonio Golini, acting chairman of Istat, the country’s national statistics office,
told a hearing in Parliament in Rome that GDP will fall 1.8% this year, more
than 1.4% contraction estimate in May. The estimate contradicts the forecast
of Prime Minister Enrico Letta’s government that the economy would stop
contracting in the third quarter before returning to growth in the final three
months of the year.

CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS

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

30 October 2013

Japan’s industrial production weaker than expected
 Japan’s industrial production grew 1.5%mom in September, slightly lower than the
median estimate of 1.8% and following a 0.9% drop in August. In yoy terms, it gained
5.4% in September from a decline of 0.4% the previous month.
 Meanwhile, Japan’s vehicle production surged 13.0%yoy in September compared with
the previous 7.6% decline in August.

Australia’s new home sales accelerated to two-year high
 Australia’s HIA new home sales accelerated 6.4%mom in September, following a 3.4%
gain in August.

South Korea’s industrial output declined while manufacturing business
sentiment edged up
 South Korea’s industrial production contracted 2.1%mom in September, weaker than
consensus for -0.4%mom. August IP growth was also revised lower to 1.6%mom from
1.8%mom previously.
 Separately, manufacturing business survey edged up to 83 for November compared with
the prior reading of 82 in October. In contrast, non-manufacturing business condition
remained depressed at 70 in November compared to 72 the previous month.

What to Watch Today
US: ADP, Inflation, FOMC, Supply
 The market is looking for a 150K reading on October ADP employment following last
month’s 166K print. We expect moderate 0.2% mom gains for both headline CPI and
core CPI in September, in line with consensus. Gasoline prices at the pump were little
changed and should not be a swing factor. Core should round up to 0.2%, like it has
done in recent months, supported by rents, firmer used vehicle prices, and a turnaround
in hotel rates and airfares after a recent soft run.
 With no post-meeting press conferences or forecast updates scheduled for this today’s
FOMC meeting, the FOMC is scheduled to simply release a statement that may well
look very similar to the last one. With a lack of clarity of the economic impact of the 16day government shutdown, data quality concerns moving forward and the potential for
further fiscal dysfunction, a taper is unlikely before the new year, and even our current
baseline of a $10bn reduction in January 2014 is predicated on the assumption of
sufficiently robust economic data.
 Treasury will auction $29bn 7y notes today, translating to an approximately $19bn
increase in 10y equivalent supply.
 Any substantial innovation to the Fed’s language would likely come as a surprise, with
most expecting the Fed, like the market, does not have the degree of new economic
information that was expected from the intra-meeting period. The rates market may pay
additional attention to ADP given the data-collection issues associated with the October
payrolls figure.
 While we remain medium-term USD bulls, we think soft US data could result in
downside pressure on the USD against selected currencies, namely EUR, MXN
and INR.

The Global Macro Pulse

2

30 October 2013

Euro Area: Confidence Indicators Spanish GDP, German Unemployment
 Market consensus for third quarter Spanish GDP is for a rise by 0.1%qoq, this would
mean the end of a nine-quarter recession (previous quarter -0.1%qoq and
-1.6%yoy). Spain has now a more competitive and healthy economy, indeed unit labour
cost, export performance and current account are all improving, however the situation
remains fragile and the unemployment at 26% is still a major concern.
 In Germany, the unemployment rate for October is expected to stay flat compared with
the previous month, printing at 6.9%, after a minor but unexpected rise last month.
However, the unemployment rate is still close to its lowest level since reunification more
than 20 years ago. Lastly, we expect euro area consumer and services confidence to
increase in October to -14.5 and 3.5 from -14.9 and 3.3 respectively from last month and
to confirm the flash estimates, while in our view the Industrial Confidence is likely to
deteriorate slightly to -6.9 from -6.7.
 We anticipate EURUSD topping out around our near-term forecast of 1.40, but see
downside 3-6 months out as the market refocuses on the underlying dynamics of the
global economy (see here).

Norway: Unemployment, Retail Sales
 In Norway, the unemployment rate for October is expected to stay flat compared with the
previous month, printing at 3.6% slightly above its long term average (3.44% from 1997).
Moreover, retail sales for September is likely to increase by 0.5%, slightly more than last
month figure (+0.2%). These indicators should be consistent with the Norgesbank view,
which stated that economic developments had been broadly in line with expectations,
with the exception of some depreciation in the krone since the last meeting and lower
inflation in September. We remain bearish on NOK.

Switzerland: KOF Leading Indicator
 Consensus is that the KOF leading indicator for October will rise to 1.60 in October from
1.53 in September, which would be the strongest read for a year. We are near-term
neutral on EURCHF.

New Zealand: RBNZ Decision
 The RBNZ is widely expected to leave rates on hold.
RBNZ governor last week that recent macro prudential
hikes and raising interest rates could risk a stronger
positioned for a slightly more dovish statement together
rhetoric.

Following comments from the
measures can help delay rate
currency, the market may be
with some step-up in currency

 While AUDNZD has bounced lower, we think upside risks remain, and a retest of
September high of 1.162 is likely. Market pricing for the RBNZ remains elevated, and
AUDNZD continues to trade slightly cheap to interest rate spread. Positioning is also
heavily long NZD against AUD, leaving the Kiwi vulnerable for any dovish shift from the
RBNZ or a rollover in domestic data surprise. An increase in currency resistance by the
RBNZ, potentially by calling NZD “overvalued,” could push AUDNZD higher toward 1.161.17 levels. On the other hand, an unchanged statement may drive a knee-jerk NZD
rally, but we doubt such a rally can be sustained.

The Global Macro Pulse

3

30 October 2013

Daily Calendar
Significant Events
Wednesday, 30 October
DM
SWI UBS Consumption Indicator (Sep)
SWI KoF Leading Indicator (Oct)
SWE Wages Non Manual Workers (Aug)
NOR Unemployment Rate (Aug)
NOR Retail Sales (Sep)
UK Lloyds Business Barometer (Oct)
SPA GDP (3Q P)
GER Unemp Rate/Change (Oct)
Euro Area Indust/Cons/Serv Confidence (Oct)
US CPI/Ex Food & Energy (Sep)
US FOMC Rate Decision

Previous
1.32
1.53
1.6%
3.6%
0.2%
57
-0.1%/-1.6%
6.9%/25K
-14.9/-6.7/-3.3
0.1%.0.1%
0.0%-0.25%

Median

CS Est.

Comment

1.6
3.6%
0.5%
0.1%/-1.2%
6.9%/0K
-14.5/-6.5/-2.8
0.2%/0.2%
0.0%-0.25%

-14.5/-6.9/-3.5
0.2%/0.2%
0.0%-0.25%

German State Treasury sells Bund 2.0% Aug-2023 (€4.0 bn)
Italian State Treasury sells BTP 3.5% Dec-2018 & BTP 4.5% Mar-2024 (€5.5 bn*)
Swedish State Treasury sells SGB 4.25% Mar-2019 (SEK3.5 bn)
State Treasury sells Note 7Y ($29.0 bn)
EM

EEMEA
South Africa: South Africa Budget (Sep)
Ukraine: GDP, y/y (3Q P)

-1.79B
-1.3%

-9.0B
0.4%

-4.0B
0.4%

LATAM
Brazil: FX Flows – Central Bank, US$
Brazil: Primary balance of the central gov
Brazil: IGP-M inflation index, m/m
Chile: Unemployment Rate (Sep)

-0.1B
0.1B
1.50%
5.7%

-0.5B
0.91%
5.8%

-4.5B
0.9%

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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