Forex Trading Report - 22 AUGUST 2013 07:40 (London) Fundamental Analysis, Technical Analysis, Market News FOMC minutes: No signal, but tapering still possible in September. Despite the sharp rise in yield, the FOMC minutes show no increased reluctance to reduce asset purchases soon. The committee’s majority seems comfortable with Chairman Bernanke’s timing to start tapering later this year and views higher yields not as a significant recovery threat. “Several participants” expect the housing recovery to remain resilient given mortgage loan availability, pent-up demand and still low yield levels. Verbal guidance that rates are likely to stay low when purchases are complete, was judged to have been effective to limit tightening of financial conditions. The Fed is preparing stronger guidance to influence market expectations. While there was no clear signal, this should still allow a “tapering” announcement in September. Economy & Markets Capital markets fall on FOMC minutes Equity market weakness continues. German 2-year Schatz paper reaches highest yield level in one and a half years. Yield on 10Y US Treasuries has the highest closing in two years. EUR/USD drops below 1.34. MACRO USA: Positive surprise in existing home sales Sales of previously owned US homes increased by 6.5% MoM to 5.29 mn units (annualized) in July, exceeding market expectation of 5.15 mn units. Compared to last year, sales are up by 17.2% YoY and the median sales price by 13.7% YoY. These data confirm the recovery in the US residential sector. Housing demand is supported by still good affordability and improving labor market conditions. UK: Public deficit instead of expected surplus in July Public sector net borrowing excluding temporary effects of financial interventions (PSNB ex) was GBP 0.1 bn in July, worse than consensus expectations of a GBP 2.9 bn surplus. Since July is usually the second highest month for receipts during the financial year, reflecting the timing of corporate tax and self-assessment payments, the data is rather disappointing. Today’s key data Eurozone PMIs (August): The improvement in forward looking elements of business surveys (e.g. new orders) in July suggests that the headline indices should rise further in August (market expectation at 50.7 after 50.3 in July). The services PMI is likely to break above the 50-threshold (market expectations at 50.2 after 49.8) for the first time since December 2011. China HSBC flash manufacturing PMI (August): After a H1 slowdown, economic momentum is showing signs of stabilizationwith a 50.1 reading Vs Expected 48.2 being a 4 month high. US indicators (July): Market expectations are for the Markit manufacturing PMI to rise further to 54.2 (53.7 previously). Canada retail sales (June): After an impressive rise in May (1.9% MoM) and due to some impact of floods in Alberta, retail sales are likely show a dip (market expects –0.4% MoM in June). MARKETS Fixed income: US Treasury yields rise sharply following release of Fed minutes US Treasury yields rose across the curve following the release of the minutes of the 30–31 July FOMC meeting, although they revealed no significant new information. While the Fed maintained that tapering of bond purchases would be data dependent, market consensus is that it would start at the September FOMC meeting. 10Y US Treasury yields rose 8 bp to 2.89%, the highest closing level in around two years. European government bond yields rose modestly in comparison (10Y German and UK yields were up around 3 bp). Germany sold 2-year Schatz paper at 0.23% at the auction yesterday. This is the highest yield level since almost one and a half years. With the Fed minutes failing to stabilize US Treasury yields, emerging market bonds could remain volatile in the near term with market participants likely to wait for the August non-farm payrolls data due early September for further direction. Equities: US equities trade roller coaster after the FOMC minutes Uncertainty over the Fed’s intentions on QE tapering weighed on US equities despite better-than-expected existing home sales for July. The S&P 500 fell 0.6% overnight with light trading volume. The Euro Stoxx 50 fell 0.5% yesterday as market speculations mounted that the Fed will reduce bond purchase program next month. Commodities: Flash PMIs in focus Wednesday was a mixed day for commodity markets with prices fluctuating between gains and losses as the FOMC minutes provided limited impetus. Gold prices ultimately dropped below USD 1370 after a choppy session. The FOMC minutes contained no surprises and the stimulus reduction may start later this year. Gold reacted negatively as US bond yields picked up in response. Oil prices were lower on Wednesday as Libya reportedly re-opened ports for oil exports, which had been disrupted in recent weeks. That said Brent’s price reaction was muted as prices just dropped below USD 110. WTI posted bigger losses as prices slipped below USD 104. Weekly US oil market figures came in roughly in line with expectations, leaving oil prices to take cue from the broader market. Currencies: USD strengthens across the board after FOMC minutes While the FOMC minutes offered no further details on the tapering process, the minutes did note that US unemployment rate had declined “considerably”. With 10Y US Treasury yield jumping to 2.89%, the USD followed suit and advanced against the entire range of major, emerging market and Asian currencies. As such, the DXY Index recoverd from below 81 to 81.40. Needless to say, EUR/USD pulled back below the 1.34 level. The focus today would be on the Eurozone flash PMI prints, wherein an improvement in the sentiment could provide some support to EUR/USD in the short-term. The NOK underperformed amongst the major currencies, with EUR/NOK rising to 8.10. This week’s weaker-than-expected Norwegian Q2 GDP print has weighed on the NOK sentiment. The Norges Bank has started to sound increasingly dovish and the risk of eventual easing is high. The recent recovery in AUD/USD lost steam as the pair fell back below the 0.90 support yet again. Fundamentals like weakening interest rate support and lower terms of tradecontinue to put pressure on the currency. Pressure on Asian currencies returned just after a day of respite. While the latest efforts by the Reserve Bank of India (RBI) did managed to help bring some calm to the Indian fixed income market, the INR remained weak at 64 against the USD. forextrading.tv/blog/2013/08/22/morning-report--22-august-2013--fomc-minutes-no-signal-but-tapering-still-possible-in-september/#axzz2cgtgsPj7
Posted on: Thu, 22 Aug 2013 10:12:41 +0000
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