Political Focus Shifting in Europe

new microphone

There was a huge sigh of relief among investors when it became clear that the populist-nationalist wave that ostensibly led to Brexit and Trump’s election was not going to sweep through Europe.  The euro gapped higher on April 24, and it has not looked back.  We have suggested that with the outcome of the German election, European politics shift from tailwind to headwind.  Continue reading

Discipline Argues Against Consensus Narrative

new build

  • The market has come to accept a December rate hike, just as it had to be led by the hand to recognize the March hike
  • The enthusiasm for Spanish assets is somewhat diminished today
  • In addition to the euro’s streak, there is another notable streak underway:  Japanese stocks
  • Singapore August retail sales rose 3.5% y/y; MAS expected to remain on hold tomorrow
  • India reports September CPI and August IP; Peru central bank is expected to keep rates steady at 3.5% Continue reading

China Ends Swap Lines with South Korea: A Dog that Doesn’t Bark

new china

 

China has declined to renew the $56 currency swap line with South Korea.  The swap line has been in place for eight years. Initially, it was launched at $26 bln in 2009 and expanded in 2011.  It has been extended twice since then.  

 

The swap line from China was South Korea’s largest swap line, accounting for almost half of all of its official currency swaps.  Just two days ago, news wires were reporting that officials were optimistic that the swap line would be renewed.  

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Markets Looking for a New Focus

new bulbs

  • Spanish assets are rallying following Puigdemont’s attempt to square the circle yesterday by deferring the independence announcement
  • New revelations came from Japan’s Kobe Steel that its deception of its materials extends beyond copper and aluminum
  • The highlight from the US today will be the FOMC minutes from the September 20 meeting
  • MXN is the second worst performer in EM this week (behind TRY) on NAFTA concerns
  • Taiwan reported strong September trade overnight; Brazil August retail sales are expected to rise 4.4% y/y

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Brief Thoughts on the Euro

new pencils

The euro peaked a month ago near $1.2090.  It recorded a low near $1.1670 after the weather-skewed US jobs data seen at the end of last week.  The euro recovered from the weekend and set new session highs late US dealings.  That reversal pattern marks the end of the month-long decline.  There has been follow-through euro buying this week, and the euro is approaching the 38.2% retracement objective of the decline since early September.  It is found near $1.1830, near the 20-day moving average (~$1.1835), which the euro has not closed above since since September 22.  The 50% retracement is near $1.1880.  

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From the Securities Lending Trading Desk

In the Americas, we are seeing strong broker demand for Roku Inc. as the share price fell roughly 20%, reversing the nearly 90% gain over the first two days of trading. This week, shares for Japan Display Inc. group soared a record amount after reports that affiliate, JOLED, is planning to raise funds for mass production of next-generation OLED panels. Meanwhile in Europe, Elis, the rental and cleaning company, will offer Convertible 2023 Bonds for up to EU400M.

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Dollar Pullback Extended

new shape

  • The momentum behind the “Party of Hope” has begun fading even as a new corporate scandal has exploded in Japan
  • The UK’s trade account continues to deteriorate
  • Catalonia’s President Puigdemont is slated to speak to the regional parliament early evening (early afternoon ET)
  • Russia Q2 current account is expected to move into deficit at -$2.8 bln; Chile reports September trade

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