Mar 6, 2017 - Market Update

Short recap

Asia in red on Fed rate hike prospects and slowing China

China working on reforms to reign in the debt load, put in place measures to contain future financial crisis and shift the export lead to consumer oriented economy

North Korea playing with fire again

German Private banking association don’t see the need for ultra-loose policy from ECB anymore

Oil lower on Russia production cut compliance

Trump verbally dumping MXN lower but is it really what he wants?

Weaker MXN means Mexico more competitive

Gold – net longs up 48% hitting 3-month high (COT)

Deutsche Bank selling EUR 8 bln of shares and stake in Asset management business

Need to strengthen position and increase the capital ratios

If sold at EUR 11.65 per share would bring the CET1 to 14.1%

A small surprised in dividend of EUR 0.19 while market not expecting anything

Peugeot-Citroen helped GM to exit from Europe by buying Opel-Vauxhall

OMV buying a share in Russian gas field (EUR 1.75 bln)

Yellen’s speech on Friday:

“A rate increase at next meeting "would likely be appropriate" if Fed determines that data on employment and inflation are continuing to move in line with expectations.”

Well a magic word “if”…

EURUSD and USDJPY – back to square one

Pace of rate hikes not expected to changed on Mar 15 even if Friday’s NFPs are strong

That’s why USD reaction on Fischer and Yellen muted

Do we really have more USD strength in store?

COT report – cutting USD long posit

EURUSD daily levels:

3^rd res 1.0789

2^nd res 1.0706

1^st res 1.0664

Pivot 1.0581

1^st sup 1.0539

2^nd sup 1.0456

3^rd sup 1.0414

USDJPY daily levels:

3^rd res 115.47

2^nd res 115.11

1^st res 114.53

Pivot 114.17

1^st sup 113.60

2^nd sup 113.23

3^rd sup 112.66

FX OPTIONS

EURUSD - Saw a massive selloff in the middle and longer end of the curve on Friday due to:

Le Pen losing ground, risk on in stocks, spot higher from 1.0500 despite Fed speakers and US data, and March hike already priced in

1w covering ECB and NFPs at 7.5 vol, what is the spot range of 110 pips

3m ATM down 0.9 vol to 9.35 level (3m covering FR elections)

BONDS – A heads up…

10 yr Trys yield at 2.47%

10 yr Bunds yield at 0.35%

A bit of divergence (more than 200 bps) between 10 yr Trys and Bunds

Is the market really reflecting the reality of rise in price and economy growth in EZ that way?

More reasonable level for Bunds yield would be around 1% than 0.35% now

Just imagine the shift if it materializes

ECB – QE and wording on inflation/growth crucial

As the political risks in EZ are fading away (Le Pen)

Data

The whole week will be about the below. Today we have EU Summit but no major headlines expected.

Thu:

ECB – expecting just some verbal tweaks on QE, bond buying, may be reshuffle of maturities…etc.

Markets will be searching for any hints on change in the position on rise in prices and growth

No major change expected despite Buba seeing world differently

Fri:

US NFPs – headline figure, unemployment rate and Average hourly earnings will be watched

Earnings is the number to look at if no bad surprise in headline

Should you have any questions feel free to contact me anytime.

Good luck Champs!

Mr Hawk

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