| Market Analysis Forex - 26 09 2011 |
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We will also be closely following comments from central bankers. The Bank of England has clearly indicated that, barring a miraculous turnaround in the global economic outlook, it will be implementing more QE. It is possible that it could start the printing presses in two weeks’ time, but we feel the November MPC meeting is more likely, since new BoE forecasts will be published at that point, helping to justify the action. Stock markets sold off B-I-G time, Jakarta -6.0% Thursday alone, many European bourses almost -5.0%, Russia hardest hit –15% on the week followed by Austria –11.75% and Poland –9.85%. Most indices are at this year’s lows and some trading close to 2009’s lowest levels. In typical knee-jerk reaction they rushed into USDs, ZAR –10%, the BRL –9.0% (prompting central bank intervention from a country which only last month was waging a ‘currency war’ against a too-weak greenback), taking the TRL to its weakest ever at 1.8466 and forcing Russia to move the RUB band. GBP/USD (low $1.5326) and EUR/USD(low $1.3384) at their weakest in months, the latter retracing exactly 50% of the rally from June 2010 to May 2011 (as did AUD and NZD). Needless to say 1-month at-the-money implied volatility is trading 2 standard deviations above the long term mean (most expensive since 4Q08) and the cost of insuring against default is at a similar point, Eurozone at record highs. Yields on benchmark German 30-year set a new low at 2.434%, likewise UST 10-year at 1.6865%, while emerging market yields backed up, Russia’s 30-year Eurobond from 4.179% to 5.282%. Ten-year sovereign debt spreads widened, Italy a record 410, France likewise at 88 and Austria at 82 bps. Spot Gold dropped to $1,691.10, Silver slumped to $32.29, LME 3-month Lead, Nickel and Tin –22% so far this month. As for this coming week’s numbers, the German Ifo index will be the highlight. The latest PMIs have sent a worrying message regarding economic momentum in the Eurozone. The German economy should be able to escape negative growth in Q3, but a further weakening of the Ifo would clearly bode ill for the Q4. In Japan, the week ends with a bang and a slew of data releases, including the preliminary reading of industrial production for August, the purchasing managers survey for September, and August readings of unemployment and household spending. Our focus is on whether business activity indicators maintained their recovery going into August. In Asia, August manufacturing data are due in Korea, Taiwan, Singapore and Thailand. We expect weak exports to depress manufacturing in most of the Asian economies. July- August IP data will help to fine-tune estimates of 3Q GDP growth. The soft patch in economic activity in Q2 continued in Q3, and it suggests that the consensus GDP growth forecast for this year is subject to more downside than upside revision risk. |
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