- We remain significantly bearish on basic commodity currency such as CAD and NOK as oversupply and low demand should provide a strategic theme in 2016 (alongside the Fed’s rate hike path)
- With global social risks elevating and FOMC minutes expecting to sound hawkish, we remain constructive on the USD (despite inching closer to being fully priced in)
- Current rhetoric suggests that Fed members are now comfortable with the level of global volatility and therefore will focus on labor markets and price stability for guidance.
- Chinese data indicates that home prices were slowly recovering and stabilization of the Chinese housing markets is a main construct to our Asian growth recovery theme for 2016
- Greece new agreement has put 100,000 homeowners at risk who are currently unable to reimburse their mortgage but who were accorded full protection from foreclosure
- We are clearly bearish EUR and are again looking very closely at the situation in Portugal
Events unfolding in Paris once again have grabbed the market’s attention, leading to subdued price action. According to the FAA, two Air France US-Paris flights have been diverted following bomb threats in the US and tactical police teams are shown swarming around Paris. In the G10, USD returns were balanced, highlighting a level of indecisiveness in the markets. Asian regional indices were mixed as the Nikkei rose 0.9%, while the Hang Seng and Shanghai composite both fell -0.21% and -1.01% respectively. European futures are pointing to a lower open as events in Paris weigh on investor sentiment. The USDJPY exhibited limited volatility, trading in a 20pip range between 123.47 and 123.23. AUDUSD weakened in choppy trading to 0.7091 from 0.7117. USDCHF continued to see solid demand trading to a new high of 1.0170 in the Asian session. The PBoC raised the USDCNY fix by 56pips to 6.3796, reversing yesterday’s lower fix. Commodities and commodity linked currencies continued to feel supply hitting the market. Gold dropped to $1064 but was able to rally as Europe opened its doors and coverage of Paris sent investors to the primary safe haven. Copper remained weak, falling to $206. We remain significantly bearish on basic commodities currency such as CAD and NOK as oversupply and low demand should provide a strategic theme in 2016 (alongside the Fed’s rate hike path). Crude prices did tick up slightly on evidence that US stockpiles fell and refinery activity rose, however the rally should be limited. With global social risks elevating and FOMC minutes expecting to sound hawkish, we remain constructive on the USD (despite inching closer to being fully priced in).
China data indicated that home prices are slowly recovering. The supply gut has declined as policymaker’s efforts to revive the economy through interest rate cuts and easing mortgage restrictions are starting to work. New house prices increased in 27 cities, while prices fell in 33 cities. Larges cities continued to see solid gains as prices in Shanghai were higher by 1.8% and 0.6% in Beijing. Stabilization of the Chinese housing markets is a main construct to our Asian growth recovery theme for 2016. In Australia, the 3Q wage price index, which tracks the hourly rate of pay increased 0.6% q/q and 2.3%y/y.
**Yann Quelenn, Market Analyst: Negotiations between Greece and Europe have reached a new step towards the release of €2 billion for the country’s restructuring banks. In particular, major disagreement in the debate was mainly on home foreclosures and tax arrears. However, we know that since the June negotiations, where PM Alexis Tsipras decided to turn down the people’s OXO vote to accept disadvantageous lenders’ terms for an emergency bailout deal, that Greek officials have been capable of providing some important concessions. The only unknown variable in the equation is to know by how much they are willing to compromise. Indeed, with yesterday’s new agreement, only 60% will continue to be offered full protection from foreclosure. Austerity policies are far from being over in Greece and yet still, despite this, Greek debt is not sustainable over the long haul. Instead, more and more efforts will be demanded from the Greek population. Markets have not reacted strongly to this news but the dollar keeps on the strengthening on the Fed's possible rate hike in December (which would be purely symbolic in our view). We are clearly bearish EUR and we we turn our attention to the situation in Portugal.”**
On the events calendar we have US housing start and FOMC minutes. For housing starts markets expected a decline of decline -3.8 to 1160k which is still above the yearly average. With a significant about of noise coming from Fed members todays FOMC minutes could provide some clarity to the current views. In our view insight into opinions on global risk will be critical for decisions for a December rate hike. Current rhetoric indicates that Fed member are now comfortable with the level of global volatility and therefore will focus on labor markets and price stability for guidance. In other US news hear from several Fed officials including Dudley, Mester, Lockhart and Kaplan.