January 20, 2015

The calm before the storm

For the first time in well over a week, almost every currency is trading on the same big figure as it did 24 hours ago; the one exception being EUR/USD but even this is only 60 pips from where it opened Monday morning.

For the first time in well over a week, almost every currency is trading on the same big figure as it did 24 hours ago; the one exception being EUR/USD but even this is only 60 pips from where it opened Monday morning. In part this is explained by the holiday in the United States which shut all markets there, but a general lack of fresh news and a very defensive mood ahead of Thursday’s ECB Council Meeting have left investors unwilling to commit fresh capital in potentially very volatile conditions.

Swiss National Bank sight deposit data suggests the Central Bank may have intervened to buy around CHF13bn of foreign currency over the last week, but while it may be tempting to conclude this helped EUR/CHF bounce off its lows sub-90, there is of course no information on what rates the SNB actually dealt. It may have been 1.15 or even 1.10 and with a spot rate of 1.02 this morning, it is just as likely that they made either a loss or a profit. Certainly, their CHF450+bn stock of foreign assets has taken a mark-to-market hit of anything up to CHF90bn. Ouch…

The Danish Central Bank cut its lending rate overnight from 0.2% to 0.05%, and its deposit rate from -0.05% to -0.2%, leaving both in line with ECB equivalents. Since the SNB move last week there has been increased investor and corporate interest in every country with a fixed exchange rate regime. Hong Kong, Saudi Arabia, Bulgaria, and the UAE are just some of the 37 countries around the world with a population over 1 million and whose currency is pegged.

Oil is 2½% lower this morning but a move on that scale now barely merits a mention. Has to be double-digit percentages in any asset class these days to make to make the front page…

Coming Up

All eyes will be on Chinese data this morning, not least after yesterday’s 7.7% tumble in the Shanghai Composite Index. Retail sales are expected to remain relatively firm at an annual pace of 11.8%, with industrial production seen steady around 7.4% y/y. Overshadowing these will be the estimate for Q4 GDP which is expected to ease very modestly from 7.3% to 7.2%; the slowest pace of growth in over five years.

US investors return from their holiday to a whole bunch of data this week on the residential property market, kicking off today with the NAHB housing market index for January. The GFC trough was just +8 in January 2009, since when it recovered to a recent high of 59 just three months ago. Consensus is for a small rise from 57 to 58 in January.

On Wednesday, a 1.2% increase in housing starts is forecast to take the level up to 1040k(saar); just shy of July’s 1097k peak and still a very healthy number almost double the rate seen as recently as 2011. Building permits are expected little changed around 1055k. Thursday brings the FHFA house price index which is expected to rise 0.3% m/m in November after October’s +0.6% increase, whilst on Friday the market expects a 2.4% m/m increase in existing home sales to an annual pace of 5.05m.

Locally in Australia, Westpac Consumer Confidence today and New Home Sales Thursday are the only numbers to trouble the scorers. Over the ditch, New Zealand CPI out Wednesday is expected to fall around -0.1% q/q take the annual rate of inflation down to just 0.8%; below the RBNZ’s 1-3% medium-term inflation target.

The biggie, of course, is Thursday’s ECB Meeting and the likely announcement of a programme of QE. Thus far the ECB has bought just 1.7bn euros of ABS in 7 weeks. At this pace it would take almost 77 years to expand its balance sheet by 1 trillion euros. No wonder investors are gearing up for a substantial bout of sovereign bond purchases…


On global stock markets, the S&P 500 was +1.30%. Bond markets saw US 10-years +0.00bp to 1.84%. On commodity markets, Brent crude oil -2.90% to $48.72, gold was +0.0% to $1,277, iron ore -0.8% to $68.09.

For further FX, Interest rate and Commodities information visit nab.com.au/nabfinancialmarkets



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