The opacity and frequent false alarms about Chinese growth have left traders jaded but the concerns are mounting. The commodity bloc suffered to start the week as those fears percolate while the pound led the way as the real money flows we wrote about yesterday return. But the main focus will remain on China with the manufacturing PMI due next.
All areas of Chinese growth are suspect and last week's surprise liquidity injection left of us two minds. The willingness to act by China's central bank was proactive and crushed speculation they were going to sit on the sidelines. On the flipside, perhaps they wanted to stay on the sidelines but were forced to act based on the severity of circumstances.
This week worries focus on the property market and that has been a perpetual focus because of the abundance of evidence of shady financing and rapid price rises.
If any of the fears prove to be substantiated the floors for the commodity currencies (and commodities themselves) could be much lower.
The focus now shifts to the Chinese flash manufacturing PMI at 0145 GMT. The consensus is for a slide to 50.0 from 50.2. A slide to 49.9 or lower would be a psychological blow at a delicate time as it also indicates a contraction.
Otherwise, watch for comments from Fed dove Kocherlakota at 2330 GMT. A less dovish tone would signal a broader shift at the FOMC and Kocherlakota is known to change his mind.
|Markit Manufacturing PMI (SEP) [P]|
|58.0||57.9||Sep 23 13:45|
|PMI (SEP) [P]|
|50.0||50.2||Sep 23 1:45|
Gold's 10% decline to fresh 8-month lows from its July highs emerges on a simultaneous rally in bond yields and the US dolla. Considering the US dollar is rallying in ways not seen since 2005, gold weakness is here to stay. Full charts & analysis
The New Zealand dollar starts the week a quarter-cent higher after John Key secured his third term as PM. Last week the Canadian dollar was the best performer while the yen lagged. Interestingly enough, the latest CFTC data shows that bets against the yen aren't as crowded as you might think.
The Asia-Pacific calendar starts the week off quietly but the market breathed a sigh of relief as Key won 61 seats in the 121-seat parliament. An extra 4 seats from coalition members gives him a solid majority. The result was generally expected but NZD/USD perked up to 0.8155 from 0.8120 at Friday's close.
Other moves have been small but we note some minor GBP/USD strength in what could be a sign that frightened real money that exited the pound during the referendum fright is creeping back in. That will be a theme to watch in the weeks ahead.
On the weekend, the G20 communique refrained from rocking the boat in any way by avoiding all mention of Russia.
The euro is flat so far but could get a lift after Moody's affirmed France's rating late on Friday despite rumors of a downgrade. That could be counteracted by weekend comments from ECB governing council member Coeure who said the ECB is ready to act again if needed. He hedged that by saying it's too early to judge the impact of the latest measures.
Commitments of Traders
Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +. EUR -137K vs -157K prior JPY -83K vs -101K prior GBP -6K vs +27K prior AUD +22K vs +41K prior CAD +8K vs +12K prior CHF -11K vs -14K prior NZD +1K vs +10K prior
We'd caution against reading anything into the GBP numbers because they were very fluid before and after the polls.
What stands out is the lack of conviction in USD/JPY longs. 83K is a decent sized position but given the past enthusiasm for the pair, don't be surprised to see that get a lot more crowded. It gives us optimism that 1.10+ is possible.
|Fed's William Dudley speech|
|Sep 22 14:05|
Cable regained the 1.64000 figure, alongside all GBP pairs as polls closed in Scotland's independence referendum, with the first poll from YouGov finding a 54% No, 46% Yes. The pound was a top performer on the day along with CHF after the SNB didn't introduce negative rates. The first referendum results could hit around 0100 GMT. In today's Premium Insights, we issued 2 new GBP trades with 2 charts ahead of ahead of the upcoming Scottish referendum announcement. NZDUSD, USDCHF and NZDCAD have all hit their final targets. Full trades & trades Latest trades & charts
Cable has inched back from as low as 1.6054 last week and a flurry of buying hit just hours before the results as the final polls showed a 4-6 point lead for the No side. The first referendum results are expected from Stirling at 0100 GMT which is believed to be a stronghold for separatists. If they do poorly there, the market will quickly price in a No victory.
At 0300GMT (0400BST) results from the anti-separatist stronghold South Lanarkshire and independence stronghold of Dundee are due. If one side takes both, it's over.
By the time a final result is announced the 'buy the rumor and sell the fact' trade in cable could be underway.
If it remains close it could be a long night as ballot boxes arrive from remote areas. One of the late announcements will come from Aberdeen, which is a wealthy area and likely to tilt the balance back toward No if it's extremely close. The final votes should be in by 0700 GMT but if it's still close then, the market will be running scared and cable in free-fall.
What was also notable Thursday was the paring of post-FOMC gains in the US dollar. Aside from USD/JPY, the US dollar took a break and all the gains against CAD and NZD have now evaporated.
Six hours until the preliminary results of the Scottish Referendum start emerging from Scotland's 32 regions, GBP accumulates fresh upside against all currencies after all, but one poll show majority for the 'No' camp. GBPUSD nears the top of its 2-month trendline resistance and GBPJPY hits a fresh 6-year high. Holding two GBP shorts in our Premium trades, we added 2 GBP trades to hedge those positions ahead of what promises to be a volatile 5-7 hours. Reflecting recent stabilisation, GBPUSD 1 month call options have fallen for two straight days. Meanwhile, our Premium trades in NZDUSD, USDCHF and NZDCAD have all hit their final targets over the past 24 hours, with an average gain of 170 pips per trade. The latest trades and charts are found in the Premium Insights.