Prepared by John Hardy, Consulting FX Specialist, Saxo Bank
Asian officials talk up the USD carry trade bubble Officials from China and Japan were out overnight complaining about US monetary policy and the risks it poses for the creation of asset bubbles - largely a fait accompli in our view, though the bubble can certainly worsen from here. Chairman of the China Banking Regulatory Commission said that low rates in the US and a falling dollar could mean "new, real and insurmountable risks to the recovery of the global economy."
The Bank of Japan's Shirakawa said the emerging economies "might overheat and experience financial turmoil". These are the kinds of signals broadcast by officialdom as Obama continues his Asian tour. He is China through midweek, and will meet with Chinese president Hu Jintao on Tuesday.
One might think that the situation would lead to the Chinese considering an appreciation of their currency vs. the greenback, but the imbalanced recovery in China is likely the reason for its maintenance of a virtual peg. Recent signals emerged suggesting that China is looking to move again on the yuan after freezing its level vs. the dollar since the beginning of the crisis.
(The cynic might chime in that the "signals" for yuan appreciation were merely an olive branch extended ahead of Obama's visit.) In any case, China's stance on its intention for the yuan were muddled by the Chinese Commerce Ministry's Yao overnight, who stated that a stronger yuan "is not conducive to a global economic recovery is not fair."
He also stated that "It's necessary for us to provide a stable and predictable environment in terms of macro-economic and exchange rate policies." He did NOT say 'we're petrified that the recovery will not materialize as hoped and that we risk a massive asset crash in China', though that might be closer to the truth...
Yao's very clear statement suggests that yuan policy is unlikely to change in the immediate future. This is actually EURUSD bullish as it presents the risk of additional reserve diversification pressures on the greenback. The situation in EURCNY, meanwhile, is becoming untenable, and it will be interesting to see how the Europeans treat the issue in coming months.
Whenever the Chinese finally do move on the yuan, it will actually be USD-bullish vs. Europe, as it could short-circuit the reserve diversification trade, even as the USD would decline vs. Asia. The IMF's Strauss-Kahn holds the view that the Chinese need to move on the yuan and stated last night that "Allowing the yuan and other Asian currencies to rise would help increase the purchasing power of households, raise the labor share of income, and provide the right incentives to reorient investment."
Other Asian news included a Japanese GDP report showing better than expected growth. JPY crosses have bounced back sharply higher from Friday's lows, choosing to follow the risk appetite rather than the moves in interest rates, which suggest that the JPY should be stronger here. EURJPY is one of the more interesting crosses to watch of late for JPY direction as it has mostly traded within a 200-pip range for eight trading days now and has failed to break in either direction.
US Retail Sales
US Retail Sales data for the month of October showed an anemic rise ex Autos. So-called "Black Friday" - the first Friday after next Thursday's Thanksgiving - is fast approaching and is the next major indicator for the strength of holiday shopping in the US. It's hard to imagine a strong shopping season considering record real unemployment since WW II, dour "present situation" indicators for confidence, higher savings rates, anemic wage growth for those still with a job, and tighter credit conditions. Will this market ever see a reality check?
Looking ahead
We seem to be back in bubble inflation mode as we start this week. Gold has vaulted to new highs, the commodity currencies are rattling their cages once again, and equities are trading just off recent highs for the cycle. Last week's interesting move to USD strength failed to follow through and we're currently neutral in a narrow zone, looking at recent bubble highs to see if they will hold the market back from another round of risk appetite. To the downside on risk, we have last week's highs in the greenback that need to be breached to reinvigorate the argument for dollar strength again.
Watch out for the Fed's Bernanke out speaking in the US today. All signs are that the Fed is in a cautious, wait and see mode, but any turn of phrase can rock the boat.
0 komentářů:
Okomentovat