- The past week’s market moves raise a recurring question: have stocks and currencies reached a turning point? Since last Friday, the S&P is up 18%, the VIX has collapsed some 26 percentage, high yielding currencies are up and FX vol has drifted lower.
- Central bank rate decisions and the US employment report dominate the release schedule in the week ahead. Market expects the RBA, RBNZ, Bank of England, and the ECB to ease aggressively. Given the magnitude of the rate cuts already seen in recent months, much of these moves are already discounted, leaving the focus on any guidance as to where rates will trough.
- The main data highlight will be US employment. Given the ongoing deterioration in leading indicators, the consensus look for another hefty decline in payrolls combined with a further rise in the unemployment rate to its highest since 1993.
- Judging by the price action to start the week (JPY, USD, and CHF all stronger, TRY weaker, credit gapping wider, equities down and commodities thrashed), the 5 consecutive days of rallying risk last week seemed like the bear correction and today’s sell-off the resumption of the larger downtrend rather than the other way around.
- The data supports this view as well - the scope of weak macro data in one 12 hour cycle is amazing. Korea exports were extremely weak, China PMI fell from 44.6 to 38.8, another record low, and Eurozone and UK PMI’s were shockingly weak as well, which pushes us further into aggressive rate cutting territory for both the ECB and BOE meetings this week.
- Russian PMI and Indian exports also plummeted and poor German retail sales topped off the list of holiday cheer.
- The market also focused on the collapse of Japanese property developer Morimoto and the weakest Honda sales in 4 decades, and the fact that neither Australia nor Italy had particularly impressive stimulus packages. Merkel also declared this morning that Germany would not take an immediate steps to boost the economy - so the wedge between collapsing global growth prospects and certain governments’ lack of ambition to meet the challenges head-on will grow wider and baffle the market.
- FX responded appropriately - with large stops taking us within 1 pip of crucial 93.50 support in USDJPY and the market aggressively selling GBP after the rally from last week, with EURGBP bouncing fast and hard off the .8230 level.
- The main focus for FX markets was the 0.50% higher fixing in USD/CNY, which was the largest move since the revaluation in 2005 and caused a flurry of dollar buying in NDF’s, with 1yr trading up to 7.28, over 5% depreciation priced.
- The all-time high in Bund futures also turned heads. This week presents plenty of event risk to watch - GM presents to Congress tomorrow, the BOJ announced an emergency policy meeting for tomorrow as well, and payrolls are on the calendar for Friday.
FX Market Update - this week presents plenty of event risk to watch
December 1st, 2008 · No Comments
Tags: FOREX Market Update
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