* PBOC ;s relaxed stance vs moneymarket rates is having an immediate effect
The Peoples Bank Of China have guided moneymarket rates higher since early July, taking rates up from 1% to 1.76%. With yields on Chinese three month treasury bills unchanged for the first week of eight it seems the Peoples Bank of China now appears relaxed. For now at least.
This has had an immediate effect on equity and commodity markets, hence moving higher.
Short term, the market has improved for assetbuyers.
Yesterdays sharp Oil move higher on the back of shrinking US Oil inventories (due to lower imports, not higher demand), seems to be indicating the Oil carry trade is not quite completed as of yet.
Conclusion; The Usd will consolidate or even weaken near term
* Jpy and the USD to switch places?
Weekly Japanese security flow data shows continued inflows into the equity market. In contrast to bond flows, equity flows are currency hedged to a much lower degree, hence, the Jpy will benefit from increased equity inflows into Japan.
As such, the inverse relationship between the Jpy and global risk appetite may be easing. Instead it seems the USD could takeover the role as the worlds premier funding currency. Whether this actually happens will depend on whether Japans net flows become equity, instead of, bond driven. Should the Japanese netflows become equity driven it would also mean the Usd would become the premier indicator of global riskaversion. This would be one reason I would expect Usd vols (along with other asset vols) to pick up this fall.
* Usd/Jpy and the US 10 year bond
With the US 10 year bond down at 3.40% yield, well below the crucial 3.47% level, Usd/Jpy should remain top heavy, despite the short term bullish environment.
* Near term bullishness vs slightly longer term bearishness
Looking for the potential of this short term bullishness to hang on for a few days. My bearish weariness to increase as we approach September.
The German election and the Chinese 60yr anniversary working as catalysts for a refocus on bad Europen bank debt as well as a reduction of loose monetary and fiscal policy.
Positioning in most assetmarkets remains onesided, with sentiment to match. Given the fundamental macrooutlook and mismatch between marketplaceoutlook, ingredients are in place for negative surprises to trigger ditto market reactions.
*New positions and position changes
- Sold my Calls on IVN
- Added to my long SAS airline stock
- Long gamma delta hedging in Eur/Jpy, Eur/Usd and Gbp/Usd
As usual, good luck
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5 comments:
Hi Macrotrader....hope you are very well indeed... im back from my own holidays!
On JPY, I thought around this time the homeland repatriation act flows were going to be kicking in (which were potentially very substantial). Anyway, I cant be sure and must investigate myself.
The single thing that surprises me most on my return is that people are telling me positioning in a lot of EMFX is light (PLN a long running favourite of mine - even that is supposed to be lightly positioned after a near 10% move in a short space of time)... let's see - I'd like to think so (though a little sceptical).... personally think a bubble could generate in EMFX given the low rate environment and strong relative domestic demand in those countries... S&P and EURUSD permitting, haha well those are the risks arent they, and two big ones at that!
Hi J72 and welcome back, hope you had a great holiday!
Please let me know re the homelandrepatriation act.
I am not aware of it.
Re EMFX, as of late, they have done very well indeed. Quite strong correlation to the equity markets, the Usd, as you point out.
Markets on a high still from the injection of low rates and loads of liquidity.
Obvious questions;
With a dizzy head, how dislocated will assetvalues become?
How long before the hangover and the "day after"?
Enjoy the party but make sure youre close to the emergency exit.
Haha I'm always close to the exit although I guess to join the party you've got to be close to the dancefloor too eh?!
The potential jpy repatriations are huge and only a small fraction has been done. Will post deets tomorrow. Also note investment trusts have been experiencing outflows for a while - odd that... while similar funds elsewhere in the world have been seeing inflows.
On emfx personally think there r some very cheap currencies... Pln mxn and inr in particular... I can make a strong case for these being undervalued. Pity I can't say the same for equities and the eur!
Hi J72!
The fundamentals are already bullish for Jpy. Any repatriation flows will further enhance the Jpy bullish case. However, timing does not seem ripe just yet. Patience, patience,,,,
Please feel free to elaborate further on the bullish case for Pln, Mxn and Inr.
Hi Macrotrader....sorry - been on travels. On PLN the basic balance is now in considerable surplus which is obviously very supportive to that currency. Domestic demand is also relatrively robust in Poland...compared to its peers. However positioning is thought by some to be rather heavy too. MXN I am guessing offers very cheap wages, price levels etc although the trade balance hasnt improved much which is disappointing given how much it has moved (but then i guess this reflects oil prices and lacklustre US import demand). As for India I personally think they will be among the next CBs to hike.... the fundamentals (BOP, loose policy) are less reassuring however. In the case of all three currency, they are considerably cheaper than pre-Lehmans... admittedly that is part of the attraction for me (you cant say the same for equities for example). In any case, due to the moronically high correlations these days, I realise these currencies are not going to be rallying if the S&P or EURUSD move down sharply.
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