Market Update - 27 Feb 2013

· Another election, another hung parliament in Europe. Italyhas been left in disarray as it became clear no majority would be achieved in the upper house. Bersani (centre left) and Berlusconi (centre right) will have to form a coalition to create any kind of stability, however given their vastly opposing views (most importantly on the EU) the path forward is fraught.

· Stocks across Europe nose dived, with Italy’s FTSE MIB crashing 4.9% (8% off Friday’s high). Banks across Europeled the falls with the Euro Stoxx 50 down 3.07% (DAX -2.27%, CAC -2.67%, FTSE-1.34%).

· For some reason USDMYR seems very immune to any form of moves lately, USDJPY plunged and AUDUSD plunged but USDMYR still sticking around the 3.1000 handle. We are still sticking to the view of a range trade with bias on the upside unless any major change in sentiment or fundamentals.

· Bond yields rose 40.5bps in Italy to 4.88%, 34.1bps in Portugal and 19.4bps in Spain. German bund yields fell 10.4bps to 1.45%, the lowest since the first week of the year. The Euro was stable on 1.30 support closing 1.3059.

· Trade the News: S&P issues commentary on Italy election; BBB+ rating not immediately impacted by the results. Policy decisions will dictate rating.

· The USA however has had a good bounce on the back of some stellar data and a more dovish Bernanke. 10yr yields are up 1bp to 1.87% while the DOW is up 0.75% and the S&P is 0.55% higher:

· House prices rose at the fastest pace since 2006 according to the Case Shiller index, a YoY rate of 6.84%.

· The Richmond Fed Manufacturing survey also beat expectations at +6 vs -12 prior and a -4 survey.

· CB Consumer Confidence jumped to 69.6 from 58.6 vs a survey of 62.

· New home sales rose to 437k from 369k, a survey of 380k, the highest since 2008

· Day one (of two) of Ben Bernanke’s testimony to the Senate saw him ease fears of an early exit from QE, saying the benefits (to housing, employment, demand) outweigh the risks of asset bubbles and a messy exit. “QE to continue until substantial labour market gains”. He warned the equestration could shave 0.6% off GDP growth this year if not amended and that Europe still posed risks to the US economy.

Market Update - 26 Feb 2013

• Treasuries rose, pushing 10-year yields down the most since November, as polls indicated the euroarea’s third-largest economy, Italy, may be left with a hung parliament, stoking refuge demand.

• The Italian elections have got the markets rattled after a reversal of an earlier risk rally. The Italian stock market had led equities higher across Europe and was up as much as 4% before collapsing to close only 0.7% higher. The Euro hit 1.3320, up 140 pips from Friday’s close before tanking to trade the lowest since Jan 10 at 1.3107, 200+ pips off the high.

• Early polls had suggested that the centre left would achieve a majority in the lower house however the Senate tally is a shocker and looks like leaving us with no overall majority. Deja vu: Greece?

• USDMYR sounds like an old broken record these few days with little action and we are hugging the 3.1000 bar and range trading around there. No change in range for short term 3.0700-3.1200.

• USDJPY chart looks scary, from hitting a high of 94.77 yesterday it plunged to 91.80 overnight as Kuroda which is likely the new BOJ governor is deemed an active FX interventionist…….honestly we have no idea where USDJPY is heading short term, it’s crucial as it dictates USD strength too but unless there’s a game changer, we expect USDJPY to trend towards 95.00-96.00 levels, brace for some serious volatility here.

• Apart from the above, news overnight was slow. The Chicago Fed National activity index and the Dallas Fed manufacturing index both dipped with the former turning negative for the first time since October.
  
• The benchmark yield reached a one-month low after the U.S. sale of $35 billion in two-year notes, with direct bidders, non-primary dealer investors that place their bids directly with the Treasury, purchasing the highest amount of the securities since October. U.S. debt gained as Italy may require another vote after the four-way race that ended today was poised to result in a divided parliament, spurring concern of renewed turmoil in European markets.

• The rest of Europe managed to stay in the black but the US indices are down 0.8% and hitting new lows as I type as they watch the Euro slide and uncertainty grow in Italy. Here we go again.

• Debt markets found a safety bid with US 10yr yields falling the most since the last Euro crisis, down 8.5bps to 1.88%. Gilts were bid too despite the downgrade and Sterling recovered slightly.

Market Update - 22 Feb 2013

• Lots of data out of both the EU and the US last night let to a second night of risk aversion, kicked off by soft EU flash PMI reads. Hopes the euro zone might emerge from recession soon were dealt a blow, as surveys showed the downturn in the region's businesses worsened unexpectedly this month - especially in France. The EUR sold off to 5 week lows, helped by a technical break of range lows.

• US Headline and core CPI printed in opposite directions relative to expectations this month, with headline unchanged (+0.1% consensus) and core up 0.3% (+0.2% consensus).

• Overall, US CPI, Jobless Claims & PMI all came in pretty close to survey. It was Philly Fed manufacturing reading that capitulated...headline of -12.5 vs exp +1 however SPH3 actually RALLIED 0.4% on the result. I can’t explain all of that but I can tell you that inventories are down & employment on the rise so the market must be looking for a bounce in orders next month. Also note the equivalent NY report recently was a very good one..

• The UST 10y broke 2% and never looked back. Peripherals opened the Euro session 10bps wider. Both Spain and France had solid auctions with Spain selling Euro 4.2bn 2015, 2019 and 2023 paper. France sold Euro 8bn in 2015, 2017, 2018, and 2024 OATS to strong demand also. Treasuries briefly sold off after the auctions but continued their move to higher prices.

• The risk-off tone continued for the USDMYR throughout yesterday’s trading as it touched the 3.1100 handle near to closing time. The USDMYR pulled back a little off the highs and opened at around the 3.1050 level. We should see some support around the 3.1000 handle for now.

USD/MYR seen supported by dlr strength; upside cap by upbeat Q4

20 Feb 23:56 GMT USD/MYR may switch direction tdy following speculation the Fed is slowly shifting out of easing mode despite the M'sian economy growing faster than expected in Q4 expanding 6.4% y/y, beating 5.5% y/y f/c. Jan CPI rose 1.3% y/y, up slightly from 1.2% f/c. 

The broad dollar soars as FOMC minutes indicated that Fed policy makers would consider changes to the open ended QE3 program at the March meeting. The local pair may recapture 3.10 handle again as KL shares may extend losses following slumps in US stocks o/n. However, topside should be limited after upbeat Q4 growth and which helped the local economy expand 5.6% for the full year, higher than the 5.1% registered in 2011 vs the official f/c of 4.5-5.0% for 2012. 

The spot traded btwn 3.0905/3.1000; 1mth offshore MYR NDF ranged 3.1010/60 and closed 3.1035/55 in Asia. Some spread business went thru yday: 1m x 2m dealt at +62, 2m x 3m dealt at +53, 1m x 3m dealt at +115 and 1y x2y dealt at +550. 

The local bourse closed -0.11% to 1,613.33 points dragged down on losses by blue chips. 

Malaysia Palm Oil SGS Data 1-20 Feb 2013

SGS (1-20 Feb) = 811722 v 813778 (dow​n 0.25%)

Malaysia Palm Oil ITS Data 1-15 Feb 2013

ITS (1-15 Feb) = 835612 v 830830 (up 0.58%)

Market Update - 20 Feb 2013

• Equities delivered another unanimously “risk-on” show overnight, with the FTSE, S&P and DOW all making fresh 5.5 year highs. The Eurostoxx 50 added 1.75% while the DOW put on 0.37% to retake 14,000 and the S&P up 0.63%.

• USDMYR opened in tune to a slightly lower level at 3.0950 today but still expecting a tight range trading at 3.0800-3.1100. In the short term I personally expect a little more upside on USDMYR and market could also be eyeing 3.1300 should we break 3.1100.

• AUDUSD gapped back up to 1.0350 levels where it was a couple weeks back as RBA signals better outlook and rate cuts are slightly diminishing. Market still seem to favour on sell on rallies which should pressure the pair down in short term. Sell on commodities isn’t helping the pair.

• More M&A news fed through the markets and the yanks couldn’t wait to get involved after their day off, with most of the move higher coming in the opening hour. More bickering over the sequestration, a slightly weaker NAHB index and still dire auto sales in Europe were largely ignored.

• Debt markets weren’t so sure with yields falling across Europe although only marginally. US notes held out for the most but have given up in the last 2 hours with yields rising 2.5bps to 2.026%.

• Oil was up 50c while gold is under pressure again and down $5 to $1605.

• The ZEW survey then showed increasing confidence over future growth, with the Euro Zone figure showing a 42.4 % surplus in the positive camp while in Germany the figure was 48.2%. Both figures are as bullish as they’ve been since mid 2010, although notably banks and insurance companies were net pessimists and the current situation index actually fell to 5.2 from 7.1, so we’re not out of the woods yet.

Yen Extends Biggest Losses as G-20 Refrains From Censuring Japan

By Candice Zachariahs and Nicholas Reynolds

Feb. 18 (Bloomberg) -- The yen fell against the dollar, extending losses that made it the worst-performing major currency in the past three months, after the Group of 20 refrained from censuring Japanese policies driving the decline.

The final G-20 communique released in Moscow on the weekend fell short of last week's Group-of-Seven statement and means recent trends in major currencies are now set to resume, Morgan Stanley's foreign-exchange strategy team, led by Hans Redeker in London, wrote in a research note. The fact the G-20 didn't single out Japan means the yen may weaken toward 100 per dollar in the next few months, UBS AG said in a separate report.

"There was a risk that they might have fired a warning shot at Japan," said Imre Speizer, a strategist in Auckland at Westpac Banking Corp., Australia's second-biggest bank by market value. "They didn't do so and that's helped a rise in dollar- yen."

The yen fell 0.2 percent to 93.72 per dollar as of 8:57 a.m. in Tokyo from the close on Feb. 15. It declined 0.1 percent to 125.04 per euro. The single currency fell 0.1 percent to $1.3341.

U.S. financial markets will be shut today for a holiday.

The yen has tumbled 13 percent in the past three months as Prime Minister Shinzo Abe pressured the central bank to step up stimulus. The decline is the most of 16 major currencies tracked by Bloomberg versus the greenback.

No Constraint

Two days of talks between G-20 finance ministers and central bankers ended in Moscow Feb. 16 with a statement pledging not to "target our exchange rates for competitive purposes," without singling out Japan. Japanese officials denied driving down their currency, saying its decline was a byproduct of their effort to revive the economy. U.S. Treasury Undersecretary Lael Brainard criticized "loose talk about currencies," in a speech in Moscow.

"They basically said that the Japanese can continue to pursue their policies to reflate their economy, which the G-20 and the G-7 have called for, for a couple of years now," Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York, said in a phone interview Feb. 17. "We'll see the Japanese continue to pursue aggressive fiscal easing and monetary easing, and just not talk about the currency so much."

The main focus for the yen now is on who will be appointed to replace BOJ Governor Masaaki Shirakawa, who intends to step down on March 19, Morgan Stanley analysts wrote in the note published Feb. 16.

Abe is likely to nominate Asian Development Bank President Haruhiko Kuroda, who is set to pursue the government's anti- deflation course, though if he nominates former BOJ deputy governor Toshiro Muto, that may trigger the yen to retrace some of its losses back to 90 per dollar, Morgan Stanley said.

America Supportive

Investors should forget the G-20 and G-7 because their statements didn't single out Japan for manipulating its exchange rate, according to Mansoor Mohi-Uddin, UBS's Singapore-based Global Head of Foreign-Exchange Strategy.

The trend remains for the yen to weaken in the next few months "in a 90-100 range" to the dollar, he wrote. "Moreover, U.S. Treasury Undersecretary Brainard said that while policy makers should avoid 'loose talk' on currencies, she didn't row back from her earlier comments that America was supportive of Japan's efforts to reinvigorate growth and end deflation."


An announcement on who will be the next BOJ governor is expected either before or after Abe meets President Barack Obama in Washington on Feb. 22, Mohi-Uddin wrote.

Japan's currency has tumbled 16 percent in the past three months, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The dollar fell 1.3 percent and the euro strengthened 3.9 percent.

Market Update - 18 Feb 2013

• Treasuries extended a weekly decline after reports showing increases in manufacturing in the New York region and consumer confidence added to optimism the U.S. economy is gaining momentum.

• Yields on benchmark 10-year bonds climbed above 2 percent after the Federal Reserve Bank of New York’s general economic index unexpectedly increased to 10, the highest since May 2012.
  
• The Thomson Reuters/University of Michigan preliminary index of consumer sentiment rose to a three-month high. The University of Michigan index of consumer sentiment advanced to 76.3 in February from 73.8 the prior month. Economists in a Bloomberg poll forecast a rise to 74.8. It’s another piece of reasonably good data.
  

• USDMYR still hovering around 3.1000 pivot point with the news on the G10s so far driving the pair. Short term personally I still expect more upside unless there is some gam changing event.

• Spanish and Italian bonds rose as debt sales this week allayed concern the nations may struggle to raise funds amid political instability before Italy goes to the polls to elect a new prime minister.
  

• Yields on Spain’s 10-year bonds fell for the first week in five as European Central Bank President Mario Draghi said the country had achieved “enormous progress” in its reforms.
  
• Demand for the nations’ securities was also buoyed as a report showed industrial production in the euro-area rose more than economists forecast. Spain exceeded the Madrid-based Treasury’s sales target when it auctioned six- and 12-month bills on Feb.12.

• Italy sold bonds on Feb. 13 in its last offering before the Feb. 24-25 elections. German bunds declined.

Malaysia Palm Oil ITS Data 1-15 Jan 2013

ITS (1-15 Jan) = 673555 v 570510 (up 18.06%)

Market Update - 5 Feb 2013

 

• Cautious will prevail in the near term as markets begin to question the veracity of the rally in risk assets registered over recent weeks.

• Overnight flows were light. The S&P 500 closed 17 points lower to 1,496 and US rates were significantly lower with the 10 year yield falling 6 bps to 1.96%.

• RBA is meeting today and the expectation of a 25bps cut seems to have dimmed in light of the positive start to 2013 and improving data. AUDUSD seems well supported at 1.0400 but there could be more downside to the pair with the possibility of 25bps cut in the next RBA not all taken out.

• USDJPY was the mover overnight with a swing from yesterday hitting a high of 93.20 and swinging back down towards 92.20 this morning, we could see consolidation around here till 91.80 but larger picture is still for a weaker Yen as this currency war continues.

• USDMYR is also taking a breather with the pair trading back below 3.1000, I reckon overall upside on the pair should still prevail despite much uncertainty over the elections as well as the demand for dollars. Still looking at 3.1300 as next resistance with support coming in at 3.0800 and 3.0500.

• The 30-year Treasury bond extended its gain to a point afternoon as higher yields and a modest stock market retreat from five-year highs drew buyers. Benchmark 10-year Treasury notes were 18/32 higher in price to yield of 1.96 pct. The 30-year bond was up 1-4/32 in price, yielding 3.17 pct. The yield on 10-year Italian government notes rose 15 basis points near 4.50 percent, the highest since late December.
  
  Spain's Rajoy remains under pressure over payment allegations. Merkel says she has confidence in Spanish government and she will support Rajoy's reform efforts.The headlines drove Euro traded 1% lower and good size reversal against the G7 crosses.

• China services' slow uptick highlights mildness of recovery, growth in China's increasingly important services sector rose for the fourth straight month in January, though the slim increase added to evidence that the recovery in the world's second-largest economy remains a modest one.

Malaysia Palm Oil SGS Data 1-31 Jan 2013

SGS (1-31 Jan) = 1421865 v 1518750(do​wn 6.38%)