FOPLADE- Análisis Financiero.

CHINA SIGNALS POLICY TIGHTENING

-PBoC unexpectedly sells 3-month bills at a higher yield implying monetary tightening.
-New Japanese Finance Minister calls for a weaker yen.
-FOMC shows consideration for more asset purchases if conditions warrant it.
-NOK weaker on comment from Norwegian Industry Minister.
-BoE leaves policy unchanged at today’s meeting.

FX Market Update

The USD is getting a bid today in what looks to be a bout of risk aversion as Asian equities moved weaker, led by China, which has had a deleterious impact on North American equity futures (currently pointing to a negative open). The Treasury market has stabilized after a sharp drop in short yields yesterday, mirroring the USD’s fall following the release of the FOMC minutes. CAD, AUD and EUR are outperforming today, though still under pressure against the USD, while NZD, JPY and NOK are seeing the largest losses with the latter two trading weaker on negative currency comments from policymakers.
• The People’s Bank of China has sold 3-month bills at a higher yield for the first time in almost 5 months. Without overstating the immediate impact of a sale of bills at a yield only four basis points higher than the previous sale (bills are now yielding 1.3684%), this move is a deliberate one and suggests that Chinese policymakers are beginning to make good on promises to use policy to ensure that domestic monetary conditions do not lead to overly problematic asset bubbles, while still providing an overall stimulatory environment. Interestingly, if Chinese authorities choose to tighten monetary conditions using domestic rate policy (along with regulation) it perhaps does not bode well for those hoping to see tightening executed through exchange rate policy, though with the export side of the economy not the direct culprit for areas of worry in the Chinese domestic economy (real estate being one key example), this only makes sense.
• Yesterday’s FOMC meeting minutes provided some surprise for currency markets as it appears that some policymakers considered that it “might become desirable at some point in the future to provide more policy stimulus” via an expansion in large-scale asset purchases beyond the first quarter, particularly if the outlook for growth weakens or strains appear in the mortgage market. For those in the market who believed that the Fed was done with stimulatory measures, which is to say most considering the recent behaviour of short yields and the USD, this came as a surprise. Predictably, the USD weakened off sharply against the majors before recovering some ground ahead of yesterday’s close. Short yields fell precipitously on the news, but have now stabilized, however we are once again made aware of the sensitivity of the USD to the behaviour of the short end of the yield curve, particularly as it relates to the market’s take on the future of Fed policy. A perception that the Fed is angling towards looser policy for longer (relative to current market expectations) suggests a risk that the USD becomes subject to accelerated short term pressure. On that front, the August Fed funds futures contract has dropped from an implied yield of 0.57% from its Thursday close to the current 0.43%. The other relevant USD comment from the FOMC was that any tendency for USD depreciation to put significant upwards pressure on inflation would bear close watching. This is key as the FOMC is concerned with the potential for inflation expectations to become unanchored in the face of extremely stimulatory policy. S.T.

Americas

USDCAD (1.0321) • CAD remains an outperformer, trading near flat against the USD but leading
all other majors. USDCAD continues to register lower intraday highs and lows (for five consecutive sessions including today), keeping the CAD appreciatory trend well intact and USDCAD at a 2.5 month low, a trend we are well in favour of as we look for a near term test of the 1.0207 October low. Today’s Ivey PMI is expected to drop somewhat to 52.0, though the 12 month moving average in the indicator continues to show a upwards propensity along with the actual PMI series (see chart). S.T.

Europe

EURUSD (1.4336) • EUR is under pressure against the USD (down 0.5%) but is performing quite well against the major currencies. Data however is weighing on the Eurozone as retail sales fell by 1.2% in November against expectations of a flat result. Retail sales fell 1.1% in Germany as the market looked for a 0.3% gain (combined with a sharp downwards revision to the October data), though an increase in German factory orders helped to provide a very minor short term EUR boost, despite the fact that the 0.2% gain still came in very much lower than expectation. EURUSD has displayed only a minute propensity to trend upwards since the multi-month Dec. 22nd low, though we remain biased for support to hold at the 200-day moving average and a slow grind higher in the pair. S.T.
GBPUSD (1.5918) • Sterling was down 0.6% before the BoE monetary policy announcement. The BoE kept rates and asset purchase amounts unchanged, in line with market expectation, with very little reaction from GBP on the news. The key information will be the tone of the discussion at the meeting and whether the Bank is leaning more hawkish or dovish relative to the last policy meeting. This bias (should there be one) will be revealed on January 20th with the release of the minutes .
EURNOK (8.2010) • NOK is the weakest performing major today, down 0.5% against EUR and 0.9% against the USD. This follows EURNOK closing yesterday below the 8.20 level for the first time since September of 2008. This has led Norway’s Industry Minister Giske to comment that the strong economy and gradually increasing interest rates have left the country “in a position where the risk of a too strong currency is evident.” Giske made the implication that this is a factor that must be taken into consideration when developing fiscal policies, echoing comments made in early November that budget spending must be contained in order to avoid pressuring interest rates higher. S.T.

Asia / Oceania

USDJPY (93.12) • USDJPY has gained 0.9% moving into the North American open, trading back up to the 93 level helped by USD strength and comments by the new Japanese Finance Minister Naoto Kan. It appears that the Japanese government is once again focused on preventing too strong a level in JPY, as Kan said that he will seek to keep the yen at “an appropriate level while considering various impacts on the economy that may be caused by currencies” and added that “I hope it will correct a bit more”, suggesting that the government would at the least be looking for a level in USDJPY closer to 95 rather than 90. S.T.
AUDUSD (85.27) • AUD has remained strong today in the face of USD buying. Additionally, AUDJPY has pushed to a new one year high as it breaches the 85 level. This is a direct result of a combination of AUD strength over the past month and definite yen weakness. The pair’s MACD is showing that the uptrend’s momentum is continuing to build, and a close above 85 should do nothing but help the current trend extend itself. S.T.

Commodities

Oil ($82.65) • Crude is softer today after a very impressive run of 10 days of consecutive increase. DoE inventory data yesterday increased for the first time in five weeks which may cause some pause to the current bullish trend. S.T.
Suggested Reading
New finance minister favours weaker yen, Michiyo Nakamoto, FT (January 7, 2010) Fed officials worried over MBS pullback, Alan Rappeport, Krishna Guha, FT (January 6, 2010) China Raises Key Interbank Rate, Wang Ming, WSJ (January 7, 2010)





*************************
The Plaza Futures Group



EL MUNDO Y LAS FINANZAS.

Fonds pour les investissements et le développement.

FOND DU PLACEMENT PER DEVELOPPEMENT OVERSEAS CORPORATION.