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26 August 2010
GlobalStra
tegy
Research Team
Global Strategy
www.rbsm.com/strategy
Global ViewsThis material should be regarded as amarketing
communication and may have
been produced in conjunction with the RBS
trading desks that trade as principal in the
instruments mentioned herein.
The View Ahead: How to play the data?
It's interesting how even appalling data such as that seen in
the US yesterday
seems to disappoint the bond market and cheer the equity market.
Clear signs of
fatigue developing and I continue to think that we can have a
few days of
sideways price action. This should not be seen as an opportunity
to get out of
long-held trades, merely a pause for breath. Stay long bonds,
short equities and
long the USD.
Talking of the dollar, I was taking a look at EUR/USD yesterday,
specifically
looking at the relationship between EUR/USD and spreads to
Germany in
Europe. There has been a decent relationship in the past 16
months or so (R-squared of 0.76) and based on that the current
estimated level for EUR/USD
comes in around 1.22, so EUR/USD looks 4-5 figures high based on
the
periphery widening. I think this is an important support to our
FX strategists view
of further EUR weakness, especially given the rates strategy
view that periphery
will widen further from here.
Lastly, and back to my first point, let's look at this
afternoon's data. RBS and the
Bloomberg consensus expect a 490k reading on initial jobless
claims. Given the
way the market has reacted to previous data releases; one
wonders if we need a
big 5-handle number to actually get stocks lower and bonds
higher in the short-
term. Medium-term, however, even a 490k number (which would
likely be taken
as positive by the market) leaves us in a zone where positive
private payrolls
growth in coming months becomes questionable. That is why you
shouldn't try
and trade this small correction in bonds equities here, because
the medium-term
story will see lower yields and lower equity prices, once the
market has caught
its breath. Andy Chaytor
Ahead today
US weekly jobless claims (8:30 EDT): Claims should ease to 490K
and this
should be the first read on claims free of statistical problems
in over a month.
G10 data calendar
EM data calendar
Overnight news
Australia capex survey Q2: Equipment investment fell a sharp
4.1% in Q2,
much weaker than expectations. This disappointing result offsets
the strong rise
in non-residential construction and leaves business investment
basically flat in
Q2. Investment plans were revised up sharply and investment is
set to be the
major driver of growth in 2010-11.
UK CBI reported sales, Aug: retail sales index rose to 35 from
last months 33,
strongly beating consensus of 18, a 3 year high.
http://strategy.rbsm.com/Tools/Content/ContentViewer.aspx?ContentID=162738&clid=6603&menuKey=165&source=ContentListhttp://strategy.rbsm.com/Tools/Content/ContentViewer.aspx?key=oWhMswroOWxuIKyUQ6THeMb0N%2fHzbXeWEW76NoDffEMYhY6noC59mQ%3d%3dhttp://strategy.rbsm.com/Tools/Content/ContentViewer.aspx?key=oWhMswroOWxuIKyUQ6THeMb0N%2fHzbXeWEW76NoDffEMYhY6noC59mQ%3d%3dhttp://strategy.rbsm.com/Tools/Content/ContentViewer.aspx?ContentID=162738&clid=6603&menuKey=165&source=ContentList
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The Royal Bank of Scotland
Euroarea M3 money supply, Jul: at 0.2% yoy money supply was
slightly below
expectations and unchanged from June. Annual growth rate of
total credit to
euro area residents increased to 1.9% from 1.5% in the previous
month. The
annual rate of growth of credit extended to general government
decreased to
7.6% in July, from 8.1%, while the annual growth of credit
extended to the private
sector increased to 0.6% from 0.1%.
GlobalStrategy|26
August2010
Sweden unemployment, Jul: rate eased back to 8.0% from last
months 9.5%.
This release was however, marginally worse than consensus of
7.9%.
Philippines GDP, Q2: GDP grew 7.9% over the past year, beating
expectations
(quarterly growth was 1.3%, lower than the 3.8% in Q1). The
economy has
performed above potential, but benign inflation suggests rate
hikes will only start
in November.
Todays views
FX: The last round of Fed QE played USD negative and risk
positive. But this is
when people thought that it might work. There was also the view
that QE wasinflationary, debasing and commodities (and related
currencies) were favoured
on a store of value trade. A positive take this time is less
certain. Thursdays
early price action suggests people are simply happy to sell the
USD. This is
unlikely to be sustained for more than a few days. The JPY
(valuations, QE) and
EUR (periphery, QE) are in a similar place to the US. Are
investors really going to
be confident enough to buy risk (CAD, AUD, KRW, NZD...) until QE
actually
happens? I doubt it. With Bernanke speaking Friday, its likely
to be a skittish
day.
Emerging markets NJA: Prospects for the THB have improved after
the Bank of
Thailand raised its policy rate by 25bp on Wednesday. The hike
was expected
and the BoT maintained its hawkish tone, stating that interest
rates are lowrelative to growth. The central bank was also upbeat
on its assessment of the
domestic economy and saw a "small possibility" of core inflation
pushing to the
top end of its target range next year. Front-end swap rates were
taken nearly
5bp higher after the policy meeting, while long end bonds held
firm to rally by
8bp. Better than expected Q2 GDP data from the Philippines
provided some
support for the PHP.
Emerging markets Latam: The Brazilian central bank released its
FX flow report
for the third week of August. For the third week in a row,
exporters have raised
the level of export receipts left abroad. This reinforces their
sensitivity to
USDBRL at the bottom end of this narrow 1.75-1.80 range. The
move higher this
week to 1.7822 may have triggered some repatriation of export
receipts,although accumulated export receipts abroad remain close
to record highs at
USD17.4bn. This has been only partially offset by lower
import-related dollar
demand (against actual imports). In terms of FX intervention,
daily purchases by
the BCB fell to an average USD107m in the third week of the
month, down from
USD245m in the second week and USD230mn in the first. However,
in the
context of negative net FX flows in the third week of August,
primarily on the
back of trade-related flows, the BCBs daily intervention
continued to exceed
overall daily FX flows.
Media
Clegg rejects criticism on Budget - FT
Fed to Outline Future Actions Friday - The New York Times
Obama, Mindful of Elections and Weak Reports, Holds Economic
Talks - The
New York Times
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http://www.ft.com/cms/s/0/c15ec0e6-b08d-11df-8c04-00144feabdc0.htmlhttp://www.nytimes.com/2010/08/26/business/economy/26fed.html?_r=1&adxnnl=1&ref=business&adxnnlx=1282813592-9vNJ5Qf+oZFFCtOB0d28sQhttp://www.nytimes.com/2010/08/26/business/26obama.html?_r=1&ref=businesshttp://www.nytimes.com/2010/08/26/business/26obama.html?_r=1&ref=businesshttp://www.nytimes.com/2010/08/26/business/26obama.html?_r=1&ref=businesshttp://www.nytimes.com/2010/08/26/business/26obama.html?_r=1&ref=businesshttp://www.nytimes.com/2010/08/26/business/26obama.html?_r=1&ref=businesshttp://www.nytimes.com/2010/08/26/business/economy/26fed.html?_r=1&adxnnl=1&ref=business&adxnnlx=1282813592-9vNJ5Qf+oZFFCtOB0d28sQhttp://www.ft.com/cms/s/0/c15ec0e6-b08d-11df-8c04-00144feabdc0.html
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