#interbank fx indonesia

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US Dollar Fundamental Outlook: USD/IDR, USD/PHP, USD/SGD, USD/MYR

US Dollar, Singapore Dollar, Indonesian Rupiah, Philippine Peso, Malaysian Ringgit – Talking Points

US Dollar mostly fell against ASEAN currencies last week

External event risk relatively light after trade talks delayed

IDR and PHP eyeing Indonesian, Philippine central banks

US Dollar ASEAN Weekly Recap

The haven-linked US Dollar generally traded lower against ASEAN currencies this past week as the Singapore Dollar, and Philippine Peso gained ground. The Malaysian Ringgit was little changed as well as the Indian Rupee. Global market sentiment improved, though by what is appearing to be at an increasingly slower pace. The S&P 500 struggled to maintain a push into all-time high territory, rising 0.68%.

A notable standout this past week was the Indonesian Rupiah, which weakened 1.16% against the US Dollar. Currencies from emerging markets can be sensitive to capital flows. Last week, Indonesia saw an overall US$43 million outflow in foreign portfolio investment. This is compared to +US$61.4 million in the Philippines where USD/PHP declined -0.59%.

Even though IDR depreciated, it could have been worse. The Bank of Indonesia, which has often expressed its concern about a weak currency this year, directly intervened in the FX spot interbank market. This also follows recent dismal Indonesian growth data. In the second quarter, GDP clocked in at -5.3% y/y versus -4.7% anticipated.

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Last Week’s US Dollar Performance

*ASEAN-Based US Dollar Index averages USD/SGD, USD/IDR, USD/MYR and USD/PHP

External Event Risk – FOMC Minutes, US-China Talks Postponed

Ahead, USD/SGD, USD/IDR, USD/PHP and USD/MYR will likely remain sensitive to market mood and thus external developments. In this regard, there is one less event to keep tab of. The United States and China were originally scheduled to conduct a review of the phase-one trade deal 6 months after it was initiated. However, this event appears to have been postponed indefinitely according to people familiar with the matter.

Meanwhile the US Senate has adjourned for a recess until September even though members were unable to come to terms on a second fiscal stimulus package. What may be keeping market mood from deteriorating is an executive order from the White House to continue certain provisions of the initial package. With that in mind, all eyes turn to FOMC minutes on Wednesday as a potential catalyst for market volatility.

ASEAN, South Asia Event Risk – Bank of Indonesia, Philippine Central Bank

The economic calendar docket for the ASEAN region is relatively busier. On Wednesday, USD/IDR will be closely eyeing the Bank of Indonesia monetary policy announcement. Benchmark lending rates are anticipated to be left unchanged. But, the central bank could reiterate its commitment to stabilize its currency. Tough language to uphold IDR could send the Rupiah flying and ought to be kept in mind after recent weakness.

Then on Friday USD/PHP will be turning towards the Philippine Central Bank (BSP). Like with the Bank of Indonesia, the BSP is not anticipated to adjust its benchmark lending rate. Aside from capital inflows, what may be keeping the Philippine Peso elevated is confidence from the BSP about the economic outlook. Governor Benjamin Diokno noted earlier this month that a strong 2021 rebound in GDP is expected.

At the end of last week, the 20-day rolling correlation coefficient between my ASEAN-based US Dollar index and the MSCI Emerging Markets Index, excluding China, (EMXC) stood at -0.83. This is slightly down from -0.87 in the preceding week. Values closer to -1 indicate an increasingly inverse relationship, though it is important to recognize that correlation does not imply causation.

ASEAN-Based USD Index Versus MSCI Emerging Markets Index (Ex China) – Daily Chart

Chart Created Using TradingView

*ASEAN-Based US Dollar Index averages USD/SGD, USD/IDR, USD/MYR and USD/PHP

— Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

The post US Dollar Fundamental Outlook: USD/IDR, USD/PHP, USD/SGD, USD/MYR appeared first on Forex Trader Post.

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House of the year, Indonesia: CIMB Niaga

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House of the year, Indonesia: CIMB Niaga

Indonesia faced major currency upheaval last year, testing the capacity of its banks to support their customers’ trading activity with sufficient hedging.

CIMB Niaga delivered a 250% increase in foreign exchange-related derivatives revenues year-on-year, responding to customer needs in terms of product support and technical innovation. The bank was among the first to respond to changing customer interest amid the currency upheaval that revived interest for forex-linked structured products and growth of new structured products.

Capital outflows from emerging markets, triggered in part by volatility in capital markets and the reduction in global trade, were a major concern. Rising US yields last year triggered a rise in bond yields and a slump in the currency across emerging markets, which in turn increased financing costs. That along with the growth of trade protectionism, hurt Indonesian exporters who increasingly turned to hedging to mitigate the impact.

The strengthening US currency also impacted dollar-priced commodities. When the rupiah depreciated for more than two months starting from September last year and the nation’s current account deficit narrowed relative to the end of 2017, the central bank deepened access to hedging products. These products were meant to provide users with the flexibility to protect against exchange rate risk exposure.

“Bank Indonesia increased the benchmark rate by 175 basis points and the currency weakened from 13,500 to 15,000,” says Ferdinand Wawolumaya, head of trading and structuring at CIMB Niaga. “This is a difficult risk-off scenario for a region that has a current account deficit.”

During this period, customers needed to increasingly hedge their exposure to protect themselves from currency moves. CIMB Niaga spotted the diverse client portfolio build-up that included large corporates and an increasing set of small and medium-sized enterprises (SMEs) and offered customised products. The latter had previously hedged over shorter tenors than larger firms.

Previous CIMB initiatives in structured products had already proven positive for customers by affording protection under the conditions of 2018, and this reputation gave clients comfort, he says.

“We introduced call-spread option in 2017 and this was very helpful for clients, as during the weakening of dollar-rupiah in 2018, most of the clients were already covered,” says Wawolumaya.

What also proved valuable was Bank Indonesia’s flexibility to support structured products, such as the domestic non-deliverable forward (DNDF).

After the introduction of the DNDF, the rupiah strengthened from its weakest point to become stronger by the end of the year, so the Bank of Indonesia was quite successful in managing rupiah volatility by introducing this product

Ferdinand Wawolumaya, CIMB Niaga

The DNDF essentially functions as an NDF but its settlement is in rupiah, by netting the difference of the rupiah amount between the DNDF rate and the fixing rate of the Jakarta Interbank Spot Dollar Rate (JISDOR). This overcame some barriers in the market for settlement in non-rupiah and created a new hedging derivatives product that could be used by corporates. CIMB Niaga was fast off the blocks with $74.5 million of DNDF deals and proved useful amid the currency moves.

“After the introduction of the DNDF, the rupiah strengthened from its weakest point to become stronger by the end of the year, so the Bank of Indonesia was quite successful in managing rupiah volatility by introducing this product,” Wawolumaya explains. “We set this product up within one month and, after we had begun trading it, we were able to sell it to our corporate clients, where normally the DNDF is only transacted between banks.”

As one of the few banks trading the product, its key competitive edge was to support understanding of the product among its client base so they could use it effectively.

“Education was really important; this is not a prefunded derivative, customers will not settle their forward using JISDOR fixing, so they need to know sometimes there will be slippage to the execution price,” Wawolumaya says.

The bank’s efforts in the forex structured product space delivered for clients and for itself, despite the fact that such products are typically more popular for shorter tenor during periods of volatility. Revenue for structured investment tools increased by 58% year-on-year.

“Last year, we had an increase of interest in FX-linked structured products. We are seeing more transactions despite it being introduced several years ago,” Wawolumaya observes. “Customers are more educated and can get the maximum payout when FX is trading above a certain level, or below a certain level.”

To assert its ability to build and distribute products to clients, the bank is investing heavily in technology to support a more digital architecture. As a result, customers can be better supported though improved transparency and efficiency, allowing clear understanding of and access to the investment tools available to them at the right time.

“In the old days, automation was done on the front office to the back office and risk management was automated, but price distribution and settlement was semi-manual,” says Wawolumaya.

“Now the bank is investing more in automation, so we are building a platform that can allow a customer to register and open a securities account online, so they don’t have to go the branch and can buy and sell bonds online. Using the same platform, we distribute prices to our branches so the relationship manager can easily service clients with trades automatically going into our system.”

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[bearishmitch]

Pakistan Economy: Govt. Finally Decides to Seek IMF Program Pak Rupee Weakens

Contrary to expectations where a delay in the International Monetary Fund (IMF) was looking likely, the Govt. yesterday announced to approach IMF for bailout given the country’s deteriorating external position. This is in line with our expectations of approaching IMF. Please see our detailed report titled ‘Pakistan Economy: Life with IMF & its Likely Impact’ dated Apr 3, 2018.

As per early morning reports, Pak Rupee has weakened in the interbank market by around 8% and was trading at Rs134, compared to previous close of Rs124.25. This is a positive indication to lending agencies and shows Govt’s resolve to undertake much needed measures.

As per news reports, the entire negotiation process of the bailout can take 4 to 6 weeks. We believe it may take longer given the amount of bailout needed is large, which is expected to come with strong conditionalities.

sources have been quoted as saying that along with IMF money, funding from other friendly countries may also be utilized given IMF’s letter of comfort.

A Pakistani delegation led by the Finance Minister is scheduled to attend the annual meeting of IMF and World Bank in Bali, Indonesia this week, which could further lead to developments regarding the program.

We believe it is high time that the govt finally decided to seek the IMF bailout. Other than low foreign exchange reserves (at US$8.6bn as of Sep 28, 2018, less than 2x monthly imports) the country posted Jul-Aug Current Account Deficit (CAD) of US$2.7bn, up by 10% YoY.

We are of the view that the govt’s decision to approach the IMF is a positive development and the IMF program will eventually lead to the much needed fiscal discipline and stabilization process.

The IMF program will come with specific external, fiscal and monetary measures that will likely include the following. These will likely result in slowdown in GDP growth to around 4.0-4.5% (compared to GDP growth of 5.8% in FY18):

Exchange rate devaluation: The Pak Rupee has devalued in early interbank market trading today to Rs134. The Real Effective Exchange Rate (REER) Index (as of Aug’18) was reported at around 112, when the Pak Rupee was at around Rs124.

Further hike in interest rates. The State Bank of Pakistan (SBP) has already raised interest rates by 275 basis points to 8.5% in calendar year to date.

Hike in gas and electricity tariff to reduce energy related subsidies and contain the burgeoning fiscal account (as well as circular debt). The govt. has already hiked gas tariff on average by 35% and more could follow.

Taxation measures to reduce the fiscal deficit over and above the recently announced mini-budget.

Cap on borrowing from State Bank of Pakistan (SBP) to contain monetary expansion and inflation pressures and floor on FX Reserves to maintain adequate level of reserves.

Increase in regulatory duties (RD) and customs duty (CD) on imports to contain trade deficit

Restructuring/Privatization of State Owned Enterprises. 

» Get straight to the source on Smartkarma.

Mitch recommends source https://www.smartkarma.com/insights/pakistan-economy-govt-finally-decides-to-seek-imf-program-pak-rupee-weakens?utm_medium=feed&utm_source=RSS

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Asia Crashes, Europe Slides, US Rebounds But Yields Resume Ominous Rise

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Asia Crashes, Europe Slides, US Rebounds But Yields Resume Ominous Rise

“$5 trillion was wiped out from global stocks this week.”

After yesterday’s violent last hour plunge in US stocks, which also sent the VIX surging back to the mid-30s, the overnight session was somewhat muted, with European stocks falling further on Friday morning, but at a slower pace than the sharp sell offs in Asia and New York.

Europe’s 600 Index, down -1% as of this moment and back to session lows after a modest rebound earlier, was set for its worst week since 2016 as banks and financial-services stocks led most industry sectors lower. The drop, however, was relatively modest and followed a sheer plunge in Asia, where stocks tumbled across the region, wiping out most of their gains from the previous two sessions. The Shanghai Composite recouped some gains to close down “only” 4.1% – in what has now been a two-week selloff without the Chinese National Team making an appearance and buying stocks – the Hang Seng was down 3.1% with losses across all sectors. Tokyo’s Topix closed down 1.9 per cent.

The renewed slide followed Thursday’s drop in the S&P 500, which pushed the index to a 10 per cent decline from its January high – officially, a correction – stirred renewed concerns over the future of the long bull market that followed the 2008 financial crisis, and whether the selloff that was catalyzed by systematic quant funds would spill over to retail investors. And, as we highlighted overnight, that’s precisely what happened following the single biggest weekly outflow from equity funds on record.

And while we look forward to today’s session to see if the retail liquidation continues, S&P 500 futures little changed, after earlier rising as much as 0.9%, while Dow contracts reverse advance to slide 0.3%, even as Congress passed a delayed budget deal, after the government was briefly shut down.

The premarket calm may not last: in what has become a vicious Catch 22, as futures rise, so do 10Y yields, and as the last few days have demonstrated, once the 10Y rises above 2.85%, it leads to an almost immediate selloff.

Some perspective: what was until recently the best start since 1987, has turned into a global selloff that has wiped $5 trillion from global stocks since January while the MSCI World Index is set for its biggest weekly drop since 2011.

Meanwhile over in macro, FX traders have one eye on the stock markets and another on positioning and central bank developments. While in earlier trading the dollar stayed under pressure as U.S. futures pointed to a higher open and Treasuries slipped, the entire move has quickly reversed as futures started to sink as yields rebounded, sending the BBG Dollar index (BBDXY) to session highs.

“A reassessment of the inflation outlook at this point in the cycle is natural and markets are adjusting for this,” Kerry Craig, a Melbourne-based global market strategist at JPMorgan Asset management, said in a note. “But given that U.S. markets are now in correction territory it’s likely that the most severe gyrations will hopefully have passed. Volatility may remain for a while longer, but the strong economic backdrop and sustained earnings outlook means we continue to prefer equities.”

Meanwhile, days after Goldman came out with a glowing endorsement of the commodity sector in general, and crude in particular, oil headed toward its worst week in almost a year as the global risk-asset rout further rankled investors already concerned over growing U.S. supply. Gold declined along with most industrial metals. South Africa’s rand strengthened as speculation intensifies that President Jacob Zuma will soon resign. Russia’s ruble was among the best-performing emerging-market currencies after the country’s central bank cut its policy rate.

Bulletin headline summary from RanSquawk

Partial government shutdown stopped after US Senate and House passes spending bill.

European bourses showing some resilience to the sell-off seen in the US and Asia.

Looking ahead, highlights include Canadian Jobs report and a slew of central bank speakers.

  Top Headline News from BBG

  Congress passed a two-year budget agreement early Friday that will boost federal spending by almost $300 billion and suspend the debt ceiling for a year, ending a brief partial government shutdown that began at midnight when lawmakers missed a funding deadline

Fed’s Esther George says three rate hikes this year and about the same number next year is a “reasonable baseline unless the outlook changes materially”; she also said that last week’s report of higher wages is a “welcome development” and that she expects inflation to begin to rise as labor markets tighten further and global demand pushes up import prices

Investors pulled $30.6b out of global equity funds, the most on record, analysts at BofAML says in research note citing EPFR Global data for week ending Feb. 7

Hedge funds investing only in Europe received about $6 billion in 2017, reversing a funding exodus in the previous 12 months, according to eVestment data; money pools targeting the U.S. and Asia suffered combined outflows last year of about $24 billion

RBA said in its quarterly policy statement that it will be some time before the economy reaches current estimates of full employment and inflation returns to the midpoint of the target. It left inflation and economic growth forecasts unchanged from three months earlier

U.K. PM Theresa May is adamant that Britain must aim high in its demands for an ambitious free-trade deal, just as she’s determined to make the most of her time in office, however long that lasts, officials said

Market Snapshot

S&P 500 futures up 0.6% to 2,608.50

STOXX Europe 600 down 0.4% to 372.4

MSCI Asia Pacific down 1.9% to 170.20

MSCI Asia Pacific ex Japan down 1.9% to 554.21

Nikkei down 2.3% to 21,382.62

Topix down 1.9% to 1,731.97

Hang Seng Index down 3.1% to 29,507.42

Shanghai Composite down 4.1% to 3,129.85

Sensex down 1.4% to 33,937.75

Australia S&P/ASX 200 down 0.9% to 5,837.97

Kospi down 1.8% to 2,363.77

Brent Futures down 0.5% to $64.48/bbl

Gold spot down 0.3% to $1,315.09

U.S. Dollar Index up 0.02% to 90.25

German 10Y yield unchanged at 0.763%

Euro up 0.2% to $1.2266

Brent Futures down 0.5% to $64.48/bbl

Italian 10Y yield rose 4.3 bps to 1.725%

Spanish 10Y yield fell 1.6 bps to 1.434%

Asia stocks traded negative across the board with global sentiment lambasted after the return of the market turmoil on Wall St, where the major indices closed in correction territory and the DJIA (-4.2%) tumbled over 1000 points on the day with the move accelerating heading into the close. Furthermore, political uncertainty in the US also added to the downbeat tone with the government officially in a shutdown after Senator Rand Paul blocked to fast track the Senate vote on the 2-year budget deal, other commentators have also paid credence to the continued upside in US yields adding pressure to equities. As such, ASX 200 (-0.9%) was weaker with energy names dampened after Brent crude prices fell to a near 2-month low, while losses in the Nikkei 225 (- 2.7%) were magnified by recent JPY strength. Elsewhere, underperformance in China resumed in which Hang Seng (-3.7%) and Shanghai Comp (-5.3%) slumped as the large cap energy and financials dragged, while the PBoC remained steadfast in its efforts to keep interbank liquidity stable and refrained from open market operations for a 12th day. However, the central bank instead announced it released nearly CNY 2tln in temporary liquidity through the Contingent Reserve Allowance which will allow banks to temporarily utilize deposit reserves to satisfy cash demand ahead of the Lunar New Year. Finally, 10yr JGBs were higher on safe-haven bids and with the BoJ also present in the market for JPY 850bln in JGBs across the curve. PBoC skips open market operations, for the 12th consecutive day, while it said it released temporary liquidity valued nearly CNY 2tln as it seeks to satisfy cash demand before the Lunar New Year.

Top Asian News

China Ends 25-Year Wait as Yuan Oil Futures Set to Start Trading

Citic Bank to Offer HNA Group 20B Yuan Credit Line

Bank Indonesia Intervenes to Stabilize Rupiah at 20-Month Low

Shenzhen Stocks Enter Bear Market as New Economy Dreams Fade

European traders were closely watching events in the US on Thursday: The fresh sell-off late yesterday saw US equities (DJIA and S&P 500) move into correction territory amid the surge higher in yields in which the US 10yr yield made a high of 2.88%, matching the post NFP high. This also transpired into a sell-off in the Asia-Pac region with Chinese bourses seeing its largest weekly decline in 2yrs, prompting Chinese authorities to announce a  CNY2tln temporary liquidity package. However, despite this, losses in Europe have been somewhat contained, European bourses showing a relatively mixed picture (EuroStoxx 50 -0.4%). On a stock specific basis, M&A talk has been doing the rounds with the L’Oreal CEO hinting that they may acquire a EUR 23bln stake in Nestle. Umicore shares the best performer following their strong trading update.

Top European News

BOE’s Broadbent Says Rate Path Now Slightly Higher Than in Nov.

U.K. PM Is Mulling Trip to Northern Ireland Next Week, BBC Says

Maersk Drops as Company Misses Estimates After an ‘Unusual’ Year

Flow Traders Shares Soar as Volatility Drives 1Q

In FX, Usd/Jpy is now bouncing further from overnight lows (around 108.50 where decent domestic bids were reported) through 109.00 and offers at 109.20 to a 109.30 peak so far. Similarly, Usd/Chf is firmer up towards 0.9400 vs 0.9350 at one stage and the DXY is deriving some underlying support ahead of the 90.000 level despite Greenback losses against other G10 counterparts. Cable has lost grip of the 1.4000 handle and a degree of its bullish/hawkish BoE impetus, but remains firm ahead of 1.3900, as Eur/Gbp continues to trade below 0.8800 and Eur/Usd is capped by 1.2289 resistance (55 DMA) in front of supply at 1.2300. Usd/Cad is still pivoting around 1.2600 and now awaiting Canadian jobs data amidst the ongoing NAFTA impasse, while Aud/Usd stays on the backfoot after the RBA’s dovish SOMP and weaker than forecast mortgage data within a 0.7795-60 range – 200 DMA at 0.7755 providing support and big 0.7800 option expiry (2.75 bn) also exerting some influence. Nzd/Usd is holding just above 0.7200 in wake of this week’s RBNZ meeting, which opened the door to further easing alongside central guidance for tightening in mid-2019, but Usd/Cnh has retreated from its post-capital control related spike highs.

In commodities, across the commodities complex, WTI and Brent crude futures continue to hover near recent lows, however prices have seen a slight pull back amid source reports that the Forties pipeline system is still running at a restricted rate. China plans to launch crude oil futures on March 26th.

Looking at the day ahead, the only data of note is December wholesale trade sales. The Fed’s George is also due to speak early morning.

US event calendar

10am: Wholesale Inventories MoM, est. 0.2%, prior 0.2%; Wholesale Trade Sales MoM, est. 0.4%, prior 1.5%

DB’s Jim Reid concludes the overnight wrap

The Winter Olympics in Pyeongchang starts today and if markets this week were an event I think they’d probably be the Ski Cross. If you haven’t seen this crazy race it consists of wild jumps, fast bends, spectacular crashes, terrifying falls, and jutting elbows. Just like the VIX this week.

The ups and downs continued yesterday with the eventual emphasis on the down with another very poor US close seeing the S&P 500 down -3.75% and 104 points lower than the day’s early highs. Given how sensitive markets were to a slightly hawkish BoE yesterday, one can only imagine the turmoil on Wednesday next week if US CPI comes in ahead of expectations. Obviously a softer/in-line number would be greatly received at the moment. To put the BoE in perspective their forecasts only imply three quarter point hikes over the next three years. So hardly a traditional rate cycle let alone an aggressive one. Initially the sell-off was focused on Government bonds but it spread with a lag of a couple of hours to equities with equity vol spiking again.

Now delving into equities a bit more, US bourses were down c4% yesterday with all sectors in the red and losses led by the financials, tech and discretionary consumer stocks (S&P: -3.75%; Dow -4.15%; Nasdaq -3.90%). Relative to their recent highs two weeks ago, the S&P and Dow are now officially in correction territory with the index down -10.2% and -10.4% respectively, while the Nasdaq is not far behind at -9.7%. European bourses were also lower yesterday, with the Stoxx (-1.60%), DAX (-2.62%) and FTSE (-1.49%) all down.

Over in government bonds, the UST 10 bond yield traded up to 2.882% following a weaker 30y treasury auction but closed -1.2bp lower to 2.825%, in part boosted by the flight to safety that has been absent most of this week. Elsewhere, 10y Bunds yields rose 1.7bp while Gilts rose 6.6bp following the hawkish BOE statements (more below). In credit markets, spreads on IG credit indices widened 4-5bp and the US CDX HY widened 20bp back to December 16 levels. Another focus yesterday was the volatility measures. The VSTOXX jumped c50% to 32.04, now back near the Brexit vote high in 2016 while the VIX traded within a c12pt range before closing c21% higher to 33.46 (+5.7 pt).

This morning in Asia, markets are extending the US sell off. The Nikkei (-2.93%), Hang Seng (-3.56%), Kospi (-1.62%) and China’s CSI 300 (-5.0%) are all down as we type. If these levels hold into close, all indices excluding the Kospi will be down >11% since their recent highs. Datawise, China’s January CPI and PPI both slowed mom but were in line with expectations at 1.5% yoy and 4.3% yoy respectively. In the US, the government may be partially shut down for a few hours. Earlier, Senator Rand argued against the proposed two year spending bill, leaving the Senate to wait till 1am Friday morning (as we go to print) to pass a procedural vote, then the House is expected to pass it sometime between 3am-6am, if not earlier. Elsewhere, the Senate banking committee has narrowly approved (13-12) Trump’s Fed nominee Marvin Goodfriend. His confirmation will now be voted in the full senate where approval may not be certain.

Now recapping other markets performance from yesterday. In currencies, the US dollar index was marginally higher (+0.03%) and rose for the fifth consecutive day, while the Euro dipped 0.14% and Sterling gained 0.23% following the BOE commentaries. In commodities, WTI oil retreated for the fifth straight day to be down 1.04% to $61.15/bbl (-6.6% cumulative). Elsewhere, precious metals strengthened slightly (Gold +0.03%; Silver +0.30%) and other base metals were mixed but little changed (Copper -0.35%; Zinc +0.55%; Aluminium +0.07%).

Turning back to the BOE, as expected the MPC members voted unanimously to keep rates on hold at 0.5%. However the outlook comments seemed more hawkish. The BOE Governor Carney said “it will be likely to be necessary to raise rates to a limited degree in a gradual process but somewhat earlier and…greater extent than what we had thought in November”. A stronger than expected global economy, improving wages and the continuing weak outlook for the UK’s potential supply underpinned the Bank’s more hawkish position. The bank has also upgraded its GDP growth forecasts for 2018 to 1.8% (+0.2ppt) while 2019 was steady at 1.7%. Overall, the meeting was broadly in line with our UK team’s expectations that the MPC would endorse tighter market pricing, without wanting to pre-commit to a May hike. They maintain their view that the BOE will keep rates on hold in May, as they expect demand to slow. For more details, refer to our UK economists’ note. Bloomberg’s implied odds for a May cash rate hike has increased 20ppt to 67%.

Now onto the three Fed speakers overnight. On the recent US equity sell off, similar to their peers, they all seemed to be taking it in their stride. The Fed’s Dudley said “…so far, I’d say this is small potatoes”. The Fed’s Kaplan said “… having a little more volatility, may be a healthy thing”, in part as the recent low  volatility was “historically unusual”. Then the Fed’s Harker said “stock market volatility hasn’t changed his economic outlook” and that if you believe the long end of the curve is going up, then “it makes sense that equities would have an adjustment”. That said, he does not think the changes will materially impact business investment and consumer spending.

Moving onto rates and inflation. Mr Dudley noted three rate hikes “still seems like a very reasonable projection” and that “monetary policy around the world is going to become less accommodative”. However, he didn’t put too much weight on the 2.9% yoy wage growth beat last week as it was a single data point and the “question is what’s the trend looking through many months”. Following on, Mr Kaplan noted “my base case right now is the same (3 hikes in 2018)….but it’s a dynamic process”, that is subject to the incoming data and prevailing conditions. He added he “will continue to be vigilant for looking at financial conditions and any spillovers to the economy”, but he is not seeing that at this point. Elsewhere, Mr Harker noted “I’m glad we’re seeing some firming (in inflation)”, but “it’s not obvious that inflation…will absolutely reach our 2% target”, with one of the swing factors being the dollar.

Turning back to the Euro, the ECB’s Weidmann noted “we will monitor closely any impact FX rate movements might have on our primary target of stability”, but should not “allow ourselves to become unsettled by the decline in (the recent) fall in equity prices”. On QE, he reiterated his views that “if the expansion progresses as expected, substantial net purchases beyond the announced amount do not seem to be required”. The ECB’s Praet also noted policy normalisation will be a “long complex” process.

Onto some of the Brexit headlines. Senior EU figures have told Reuters that Britain will not be ready to make a full break from the EU by the end of 2020 and the EU side is bracing for a longer goodbye. Conversely, senior UK officials told Bloomberg that the UK is planning for an instant break from existing EU regulations, such as some rules on financial services to benefit more from Brexit.

Elsewhere, after more talks between the EU and UK counterparts over the past two days, the UK Brexit Secretary Davis said the meeting was “very constructive”, but “…there are still things incomplete”.

Finally, this morning, Michal Jezek in our team published a report “Credit Spread & Vol. Repricing as Equities Go from Melt-Up to Melt-Down”. He reviews the price action in CDS index spreads and their implied volatility during the current market turmoil and shows how their future direction is linked to equity volatility products. The report concludes that the recent vol. shock as a learning event for most market participants is likely to lead to a new, higher regime for both spread levels and their volatility. You can download the report here.

Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In the US, the weekly initial jobless claims (221k vs. 232k expected) and continuing claims (1,923k vs. 1,940k expected) were both moderately lower than expectations – the former is near mid-January’s c44 year low. The January Bank of France industrial sentiment index eased back to a still solid level of 105 (vs. 110 expected). In Germany, the December trade surplus was smaller than expected at €18.2bln (vs. €21bln), with stronger than expected growth in imports (1.4% mom vs. -0.7%) outpacing exports (0.3%). For 2017, Germany’s annual trade surplus fell for the time since 2009, albeit modest (€244.9bln vs. €248.9bln).

Looking at the day ahead, in Europe we get the December industrial production data out of the UK and France, with trade numbers also due in the former, while across the pond in the US the only data of note is December wholesale trade sales. The Fed’s George is also due to speak early morning.

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ForexLive Asia FX news: Yen higher, AUD lower ... risk off?

Forex news for Asia trading Wednesday 22 March 2017

4 previews of the RBNZ policy announcement (due 2000GMT on 22 March)

Morgan Stanley see a 3 stage recovery coming for oil

Former trader at DBS brokerage unit in jail – Singapore’s first criminal spoofing case

Fed’s Rosengren spoke earlier – recap

Asia firms’ confidence hits near two-year high on US, China pick-up

US military confirm apparent Nth Korean missile launch, failure

The Fed’s Mester spoke earlier on policy – recap

Japan finance minister Aso: Not trying to weaken yen through monetary easing

BOJ’s Kuroda remarks on policy to the Diet

More on the (maybe) North Korean failed missile launch

Japan trade surplus recap – exports up the most in 2 years

Japan press: Nth Korea may have launched several missiles today

Fed’s Rosengren: Hot US commercial real estate could amplify potential downturn

RBA’s Debelle – no comments on economy nor monetary policy

BOJ’s Funo: 2% inflation target remains, still some distance to go

PBOC sets USD/CNY mid-point today at 6.8889 (vs. yesterday at 6.9071)

China – Banker confidence index climbed to highest since 2014

USD/JPY & EUR/JPY orders

AUD and NZD orderboards

EUR/USD orderboard

UBS to charge private clients for EUR deposits (accounts of > 1 million euros)

Goldman Sachs to move hundreds of people out of London before Brexit

UK press: Theresa May will reject Nicola Sturgeon’s demands for a fresh referendum

Japan data – February trade balance : Y813.4bn (expected Y807.2bn)

BOJ Minutes (January) – looks like more of the same …

Coming up from the BOJ today – Funo speaks, Kuroda in parliament

Australia: Westpac-Melbourne Institute Leading Index (February) -0.07% m/m

M6.4 earthquake strikes off Bali (Indonesia) – no current tsunami threat

Fed’s Mester: Built in >3 hikes to her forecasts for 2017

USD/JPY on the slide, under 111.50

Fed’s Mester: Has built in a ‘little bit’ of fiscal stimulus into her projections

Trade ideas thread – Wednesday 22 March 2017

Goldman Sachs on oil, OPEC, shale: Could see record non-OPEC production growth in 2018

Fed’s Mester: Does not see hike at every meeting, but more than 1 a year

Overnight: “PBOC Said to Inject Funds After Missed Interbank Payments”

BAML said today world stocks are their most expensive in 17 years

Economic data due from Asia today – BOJ & RBA speakers

ECB looking to fast track bank exits from London after Brexit

Latest French election poll puts Macron ahead of Le Pen

ICYMI: Forexlive America forex news wrap: Dollar down. US stocks tumble. Gold up. Yields lower

The risk off tone that prevailed overnight persisted in Asia. For regional stock markets that meant lower, as it did for commodities generally also. For currencies the yen kept on gaining, slipping under 111.50 early in the Tokyo morning and staying under there for a few hours before the selling dried up and we saw a bit of a bounce (of limited extent, circa-111.70 capping it on the session). News crossed during the session of another North Korean missile launch, this one apparently ending in a launch pad explosion (or something like that, it was called a ‘fail’). Market response was limited.

We had data and central bank speakers today, a surge in Japanese exports (LNR affected apparently), Funo and Kuroda from the BOJ, Mester and Rosengren from the Federal Reserve. See bullets above for details on these (and more), but it seems like Federal Reserve communication is now not just to the market but increasingly between regional presidents; after the barrage of commentary ahead of the March rate hike to make the hike a sure thing today we got Mester seemingly ruling out a May hike (maybe not quite so strongly as Evans did overnight, but in combination with his comments Mester seemed to be hinting June is the next live meeting).

Currencies …  AUD was a big mover, losing more ground to slip down toward 0.7650 before any sort of stabilisation (and not much of that, barely a 10 point bounce). NZD slid but has recovered slightly more (around 15 points from its low).

EUR/USD moved a little lower, down to around 1.0790, USD/CHF is a few tics net higher and cable is little changed after a small range session.

Gold is more or less flat and oil not too much different.

China:

On Monday this week the People’s Bank of China did a net injection of funds into money markets via reverse repos after 17 days of net drains, the OMOs continued on Tuesday and again today. Overnight news hit of  “PBOC Said to Inject Funds After Missed Interbank Payments”.

The injections have lowered rates in the lending market, relieving some of the pressure (the benchmark money rate had hit its highest in 2 years).

Regional equities:

Nikkei -1.85%  

Shanghai -0.73%

HK -1.39%

ASX -1.58%

Still to come: Don’t miss the RBNZ policy announcement. No change expected, but previews here: 4 previews of the RBNZ policy announcement (due 2000GMT on 22 March)

More – check this out from the WSJ … if this happens (& you are in the US) you could sell your stocks and get a tax break … uh-oh …. House GOP Pushing to Make Investment-Tax Cut Retroactive to Jan. 1

ForexLive Asia FX news: Yen higher, AUD lower … risk off? ForexLive Asia FX news: Yen higher, AUD lower … risk off? http://www.forexlive.com/feed/news $inline_image

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