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07 November 2013
Fixed Income Research

The Global Macro Pulse
Overnight Price Action*
Most equity markets are down in Asia today. S&P futures are off 0.2%, the
Nikkei has fallen 0.6%, the HSI is off 0.7%, Kospi is down 0.4%, and Shanghai
has fallen 0.2%. The US 10yr yield is down very slightly to 2.6366% after falling
2bps in New York trading.
AUDUSD stole the FX show, dropping from 0.9520 to a low of 0.9466 and
0.9474 at the time of writing in response to weaker-than-expected employment
data for October. Away from this G10 dollar-pairs have done little with
EURUSD sideways at 1.3522 and USDJPY down slightly to 98.61. Trading in
most EM Asia exchange rates have been similarly quiet and sideways.
USDINR has been the exception, rallying further to 62.6288, its highest level
since the end of September.
JGB yields are down across the curve with the 10y yield off 1.4bps to 0.596%
and the 20yr down 2bps to 1.481%. Most Asian rates curves have followed the
US with yields down 1 – 4bps. China has been the main exception. The 7-day
repo rate is up 7bps to 3.95% and swap rates are up 2 – 5bps in response to
the PBOC failing to do a reverse repo today. Indian yields have also risen
slightly in sympathy with the recent INR weakness.
(*) Prices are taken as of noon SGT.

What Happened Overnight
US to sell $10bn to $15bn in floating notes
 The US Treasury Department said it will sell $10bn to $15bn of its first
floating-rate notes Jan. 29 and keep auctions unchanged in the current
quarter because of political wrangling over the budget. The floating-rate notes
will have a two-year maturity and be the Treasury’s first new security in 17
years, the department said in its quarterly refunding announcement.

Australia’s employment surprised weak
 Australia’s employment rose by a marginal 1.1K in October, against
consensus for 10K gain, and September’s increase was revised lower to 3.3K
from 9.1K. The bulk of the weakness was in full time employment, which
dropped 27.9K in October, while part time employment rose 28.9K. The
unemployment rate matched market expectations at 5.7%, unchanged from
the revised rate in September.


Client-Driven Solutions, Insights, and Access

07 November 2013

Tokyo’s average office vacancy rate dipped in October
 Tokyo’s average office vacancy rate dipped by 0.3 points to 7.6% in October compared
with 7.9% gain in the previous month, the lowest level since August 2009

New Zealand’s house prices continued to accelerate
 New Zealand’s QV house prices climbed 8.9%yoy in October from previous 8.4%yoy rise
in September.

Thailand’s consumer confidence fell for the 7th consecutive month
 Thailand’s consumer confidence fell for the 7th consecutive month to 76.6, the lowest level
since February 2012 as political unrest hit sentiment.

What to Watch Today
US: GDP, Initial Claims, Fedspeak
 We project 3Q real GDP growth at 2.0% (QoQ annualized). Our third quarter forecast
assumes a final sales contribution of 1.7 pp, and a 0.3 percentage point contribution from
faster inventory building. Monthly retail sales and PCE data point to consumer spending
growth at a subdued 1.6%, with particular sluggishness centered in services spending.
Business fixed investment is expected at 4.7% (identical to last quarter), while the
narrowing in the monthly real trade deficit points to a 0.3 pp net export contribution.
Federal government consumption and investment is projected to decline sharply due to the
sequester (-7.1%). Elsewhere, we expect initial jobless claims rose 5K to 345K; the market
is looking for 335K.
 New York Fed President Dudley (voter, dove) will speak at an economic policy forum at
1:30pm; Governor Stein (voter, dove) speaks on “The Fire-Sales Program and Securities
Financing Transactions” at 1:50pm.
 The Fed will be in the market buying about $1.5bn 20-30y Treasuries, a reduction in
supply worth approximately $3.1bn in 10y equivalents.
 While we think the stronger ISM readings should keep the USD generally supported, in the
absence of new signs of strength, we think the recent USD surge could lose some
momentum. Given the speed of some of the recent FX moves, and with 10y Treasury
yields almost 20bp above their lows ahead of last week’s FOMC meeting, our expectation
for a soft payrolls print on Friday could see some near-term retracement in the USD trend.

Euro Area: ECB Rate Decision, German & Spanish IP
 We do not expect any policy change at this stage from the ECB but the tone of the press
conference should be dovish. Indeed, inflation has been surprisingly weak, money and
credit numbers remain in negative territory, the positive momentum observed in the
economic data may be running out of steam, while the relative strength of the single
currency could impede the euro area recovery. As a result, President Draghi may want to
leave the door open to the possibility of policy actions at the December meeting (when
they will revise their inflation forecasts for 2014 and produce a new forecast for 2015). The
positive Q3 Bank Lending Survey will likely be highlighted by President Draghi during the
press conference. Questions related to the AQR will also be of interest during the press
 Strong talk of negative deposit rates should rally the front-end and widen FRA-Eonia basis,
but another casual reference is unlikely to move the market. We recommend 5s30s
steepeners to benefit from a more dovish ECB, and short 5y5y EU HICPx inflation as the
risk of lingering low inflation is underpriced.
 We expect Spanish IP for September to improve slightly on the month to -1.0% from -2.0%
in August; indeed 3m3m growth momentum has improved since the start of the year.
Market expects German IP for September to stay flat on the month from +1.4% in August.
The Global Macro Pulse


07 November 2013

 France will tap the OAT 45s and launch a new 10y today, for around €6bn in total; we still
find the French long-end cheap versus swaps. Spain also issues €3-4bn between the 5y,
10y and 13y SPGBs, of which we find the 5y cheap on the curve but the 10y and 13y on
the rich side. Spain's Treasury will auction EUR 3.5 bn of bonds maturing in October 2018
(3.75%), in October 2023 (4.4%) and in July 2026 (5.9%).
 We revised our EURUSD forecasts lower to 1.30 and 1.28 in three and twelve months
given likely ECB dovishness driven by below-target inflation and the stabilization of US
yields supporting USD (see here).

UK: BoE Rate Decision, Lloyds Employment Confidence
 The Bank of England also releases its rate and asset purchase decision. We expect policy
to remain steady at 0.5% and quantitative easing at £375bn. Moreover, also the Lloyds
Employment Confidence for October will attract the attention, after a record high printing
last month (-13), the highest level since 2005.
 Short Sterling has been underperforming Euribor over the last week, and we have been
stopped out of our L-ER U6 tightener. We maintain our recommendation to receive GBP
1y1y as the market is still underpricing the BoE’s resolve to stay accommodative in the
 We are bearish sterling against the dollar (see here) but bullish against the euro around
the ECB and MPC policy decisions.

Sweden: Budget Balance, House Prices
 In Sweden, Budget Balance and House Prices will be out today. Last month printed at
SEK 28.3bn and SEK 2.074 million, respectively. We remain modestly bearish on SEK
and recommend GBPSEK longs (see here).

Norway: IP
 In Norway, Industrial and Manufacturing Production will be in the focus. Market expects
these numbers to turn positive from -0.7%mom and -3.8%mom, respectively. We remain
modestly bearish on NOK and recommend GBPNOK longs (see here).

Mexico: Inflation
 Consensus is for inflation to decline modestly from 3.39% yoy to 3.33%. 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.

Czech Republic: Rate Decision
 The policy rate is very likely to be held unchanged, with all focus on any FX policy
innovations. Given data have improved and minutes reveal rather heated discussion on
the Board, we do not expect FX interventions to be launched or the rhetoric strengthened.
The new rate projections will be of interest.
 We are neutral on CZK for the next three-month horizon when also strong current account
seasonality should help, but we remain medium-term bearish.

Malaysia: BNM Rate Decision
 The BNM is widely expected to leave rates on hold at 3%. Inflation has started to pick up,
but this is in response to subsidy rationalization measures, and fiscal policy is becoming
less expansionary. As such, we doubt Bank Negara will rush to raise the overnight rate.
 Malaysia’s fundamentals have improved, and the current account surplus is likely to rise
gradually into 1Q, which should give some supports to MYR.

The Global Macro Pulse


07 November 2013

South Africa: Manufacturing Production
 Our economist is forecasting September manufacturing production to decline 3% mom, as
labor strikes in the motor vehicle and components sectors continued in the month. This is
below consensus forecasts for a 1.2% decline.
 We remain bearish ZAR and see scope for rand underperformance relative to its EM peers
as domestic data moderate and the currency remains susceptible to negative labor market

Brazil: Inflation
 Market consensus for October IPCA inflation is for 5.87% yoy, in line with the 5.86%
reading in September. We think the data will have minimal impact on FX, as markets are
more likely to focus on the broader impact of the stronger USD. A significant deterioration
in BRL would likely make the BCB more confident with regards to maintaining its USD
swap program, an option which was a more frequent object of debate when BRL was
trading closer to 2.10.

The Global Macro Pulse


07 November 2013

Daily Calendar
Significant Events
CS Est.
Thursday, 7 November
DM SWI SECO Consumer Conf (Oct)
SWI UBS Real Estate Bubble Index (3Q)
SWE Avg House Prices (Oct)
SWE Budget Balance (Oct)
NOR Industrial Prod/Mfg (Sep)
SPA Industrial Production (Sep)
GER Industrial Prod (Sep)
Euro Area ECB Announces Rates
UK BoE Announces Rates
UK Lloyds Employment Conf (Oct)
US Initial Jobless Claims (Nov 1)
US Consumer Credit (Sep)
ECB meeting
French State Treasury sells OAT 2.25% May-2024 & OAT 3.25% May-2045 (€6.0 bn*)
Spanish State Treasury sells SPGB 3.75% Oct-2018 & SPGB 4.4% Oct-2023 & SPGB 5.9% Jul-2026 (€3.5 bn*)
Swedish State Treasury sells SGBi 0.25% Jun-2022 (SEK1.0 bn)
State Treasury buys 23-30Y ($1.25-1.75 bn)
Malaysia: Monetary Policy Meeting
Taiwan: Exports, y/y (Oct)
Taiwan: Imports, y/y (Oct)
South Africa: Mfg Product nsa, y/y (Sep)
South Africa: Mfg Product sa, m/m (Sep)
South Africa: Gold Product, y/y (Sep)
South Africa: Mining Product, y/y (Sep)
South Africa: Mining Product, m/m (Sep)
South Africa: Net Reserves, US$ (Oct)
South Africa: Gross Reserves, US$ (Oct)
Brazil: IPCA Inflation Index, m/m
Chile: Trade Balance, US$ (Oct)
Mexico: CPI, y/y (Oct)
Mexico: CPI, m/m (Oct)
Mexico: Core CPI, m/m (Oct)
Peru: Monetary Policy Meeting
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


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