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06 November 2013
Fixed Income Research

The Global Macro Pulse
Overnight Price Action*
The S&P 500 fell 0.3% overnight, but futures have rallied 0.5% in Asia. The
Nikkei is up 0.8%, the HSI has risen 0.3%, Kospi is up 0.2% and Shanghai is
flat. The US 10yr Treasury yield has traded flat at 2.6696 after rising just under
7bps in New York.
What looks to be position reduction in EURJPY shorts has worked to push
EURUSD up to 1.3512 and USDJPY up to 98.70. AUDUSD has risen to
0.9542. USDCNY continues to fix sideways ahead of the beginning of the 3rd
Plenum this weekend, rising 28pips today to 6.1475. Most EM Asia dollar pairs
have risen today. The INR has underperformed, weakening 0.5% to 61.90, the
IDR has fallen 0.3% to 11,391 and traded briefly above 11,400 and the MYR
has softened to 3.1811. USDKRW stands out for having rallied initially, but
reversing this in the late morning to fall to 1061.03.
The belly of the JGB curve is essentially unchanged, but long-end yields have
fallen 1 – 1.8bps. Yields in most Asian markets are up, following the overnight
move in US Treasuries. Despite a 36bps fall in China’s 7-day rate, swap rates
are up 5 – 14bps. Yields in most other markets are up 2 – 3bps with Malaysian
10s up 5bps and Thai 10s up 6bps.
(*) Prices are taken as of noon SGT.

What Happened Overnight
New Zealand’s employment survey beats expectation
 New Zealand’s employment as measured by the Household Labour Force
Survey (HLFS) surged 1.2%qoq against consensus of 0.5%qoq, after a few
quarters of very subdued growth. Employment measured by the Quarterly
Employment Survey (QES) also rose but at a more moderate rate, up
0.8%qoq in 3Q from 0.7%qoq in 2Q. The unemployment rate dropped to
6.2%, despite a higher participation rate of 68.6% from 68.1% in 2Q.
 The HLFS used to show a much weaker employment situation in New
Zealand in the past few quarters compared to the QES, but the two surveys
have now converged. The RBNZ will take note of the stronger employment
momentum, but will be cautious that the strength maybe somewhat overstated
in 3Q by the HLFS, in our view.
 On the price front, overall wage growth has stayed subdued. The qoq growth
rate remains at 0.4% to 0.5% as has been the case in the past two years.
Labor cost index has also been steady at 1.7%yoy in the past three quarters.

CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS

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

06 November 2013

Australia’s trade deficit narrowed
 Australia’s trade deficit narrowed to A$284mn in September lower than median estimated
deficit of A$500mn and a revised A$693mn deficit in August.

Indonesia’s GDP growth in line
 Indonesia’s GDP rose 5.6%yoy in the third quarter of 2013, in line with consensus
estimate and slowing from 5.8%yoy in 2Q. On a quarterly basis, GDP climbed 3%qoq in
3Q.

UK’s BRC shop prices declined for sixth consecutive month
 UK’s British Retail Consortium shop price index declined 0.5%yoy in October, for the sixth
straight month, against market expectation for a modest 0.1%mom rebound.

What to Watch Today
US: Treasury Refunding Announcement, Fedspeak, Buyback
 The Treasury’s quarterly refunding announcement should give more details about the
Floating Rate Note program and we would not be surprised by additional cuts to front-end
coupons. Cleveland Fed President Pianalto (non-voter, neutral, retiring early 2014) speaks
on housing and the economy at 1:10pm.
 The Fed will be in the market buying about $3.3bn 7-10y Treasuries, worth a reduction in
supply of approximately $3.1bn 10y equivalents.
 The stronger-than-expected ISM readings are likely to keep the USD supported against
G10 and EM alike for the time being, in our view. This said, with the 10-year US Treasury
yield almost 20bp above the lows established ahead of the 30 October FOMC, we think
the USD surge could lose some momentum, in absence of new signs of strength from
data. Our expectations of a soft payrolls print on Friday would be consistent with a nearterm retracement in the USD trend.

Euro Area: German Orders, PMI, Retail Sales
 The German Orders figure for September is in focus today. The current rate of German
manufacturing orders momentum is broadly in line with what survey data suggest. As
such, we believe that an increase of around 1.0%mom in September seems plausible after
weaker July and August readings. Market expects this figure to increase by 0.5%mom and
5.6%yoy, compared with -0.3%mom and 3.1%yoy last month.
 October Final PMI prints for Euro Area, Germany, France, Italy and Spain could show
some moderation in particular for the Periphery. Euro Area retail sales is expected to fall to
-0.4% from +0.7% last month.
 Germany sells €5bn of Bobl today, which we find cheap on the curve and versus swaps –
we particularly recommend buying it versus Eonia.
 We are bearish EUR, anticipating EURUSD heading down toward 1.30 over the next few
months given likely ECB dovishness driven by below-target inflation and the stabilization of
US yields supporting USD (see here).

UK: IP
 We expect UK Industrial Production for September to rebound after a weak August
reading, but we believe that momentum has probably peaked for now. IP is likely to rise by
0.6%mom and 1.8%yoy compared with -1.1%mom and -1.5%yoy last month ,respectively.
Strong PMIs could provide some upside risk to IP in coming months, but the mining and
extraction sectors are likely to remain a headwind. In October one of the main refineries in
Scotland closed for a short period, which could present some downward pressure on
industrial production figures, though the refinery has since reopened. Moreover, also
Manufacturing Production is likely to turn positive, from -1.2%mom to 1.1%mom.
 We are bearish sterling against the dollar (see here) but bullish against the euro around
the ECB and MPC policy decisions.
The Global Macro Pulse

2

06 November 2013

Sweden: Riksbank Minutes
 In Sweden the Riksbank minutes are released. The Riksbank was somewhat dovish in
its October meeting, with a marginal downward revision to the repo rate path, we will
look for this tone in the minutes. It would support our recommendation of receiving SEK
2y1y versus EUR. Moreover, we remain modestly bearish on SEK.

Canada: PMI
 We expect the PMI to increase to 53, up from 51.9 in September, above consensus for a
52 reading. While we remain fundamentally bearish on CAD, we think the currency can
benefit in the near term from the improvement in US data, causing it to outperform most
of the G10 ex-USD complex. An employment report in line with our estimates would
further this trend. We nonetheless would look at a dip in USDCAD as an occasion to
build longs.

Mexico: Inflation Report
 Today’s inflation report will be of note. We expect the bank to lower its real GDP growth
forecasts for 2013 and 2014, and shift upward its 2014 inflation forecast, as well as
reiterate that further rate cuts would not be recommendable in the foreseeable future.
 While we think MXN is better poised to benefit from a strong domestic story, in the near
term, we think the peso could remain weak in the event of further data strength in the
US. We would still expect it to outperform the rest of EM, even in the event of broad EM
weakness.

Russia: Inflation
 Our economists expect 6.2% yoy for headline inflation, marginally above the 6.1% yoy
consensus. Structural growth weakness combined with recent changes to the
intervention mechanism leave us bearish on RUB.

Poland: Rate Decision
 The central bank is widely expected to keep rates on hold at 2.50%. Given headline
inflation and inflation expectations declined slightly since the last meeting, while core
inflation has held stable, we do not expect any upgrade to the guidance. Recent MPC
member comments in fact indicate that the current guidance that rates are deemed
appropriate up to end 2013 may be extended.
 We are modestly bullish on PLN, but given risks associated with the pension reform we
favor selling EURPLN rallies and relative value plays (e.g., long PLNRUB) for now.

The Global Macro Pulse

3

06 November 2013

Daily Calendar
Significant Events
Previous
Wednesday, 6 November
DM
SWE Riksbank Minutes from Meeting
UK BRC Shop Price Index (Oct)
-0.2%
UK Industrial Prod (Sep)
-1.1%/-1.5%
UK Mfg Production (Sep)
-1.2%/-0.2%
UK NIESR GDP Estimate (Oct)
0.8%
Euro Area PMI Services/Compos (Oct)
50.9/51.5
Euro Area Retail Sales (Sep)
0.7%/-0.3%
GER Industrial Orders (Sep)
-0.3%/3.1%
CAN Building Permits (Sep)
-21.2%
CAN Ivey PMI (Oct)
51.9
US Leading Index (Sep)
0.7%
US Cleveland Fed’s Pianalto on housing and the national economy
German State Treasury sells Bobl 1.0% Oct-2018 (€4.0 bn)
Japanese State Treasury sells JGB 10Y (¥2.4 tr)
State Treasury buys 7-10Y ($2.75-3.5 bn)
EM EEMEA
Czech Republic: Trade Balance (Sep)
20.6B
Czech Republic: IP, y/y (Sep)
1.6%
Czech Republic: Const Output, y/y (Sep)
-8.1%
Hungary: Retail Sales, y/y (Sep A)
1.4%
Poland: Monetary Policy Meeting
2.50%
Russia: CPI, y/y (Oct)
6.1%
Ukraine: CPI, y/y (Oct)
-0.5%
LATAM
Brazil: FX Flows – Central Bank, US$
-0.1B
Brazil: IGP-DI Inflation Index, m/m
1.36%
Colombia: CPI, y/y (Oct)
2.27%
Colombia: CPI, m/m (Oct)
0.29%
Mexico: Central Bank 3Q Inflation Report

Median

CS Est.

Comment

0.1%
0.6%/1.8%
1.1%/0.8%
50.9/51.5
-0.4%/0.6%
0.5%/5.6%
6.0%
52.0
0.6%

33.3B
6.0%
1.9%
2.50%
6.0%
-0.3%

0.74%
2.26%
0.15%

50.9/51.5

53.0
0.7%

4.6%
2.50%
6.2%

-0.2B
0.43%

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

4


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