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News & Views: Monday, September 29

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What you need to know for today's trading day.

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This article was originally posted on the Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time.

PIMCO Total Return Update (PIMCO)

Hong Kong protesters defy Beijing with calls for democracy (Reuters)

Kiwi Plunges as Much as 2% on RBNZ Intervention; Dollar Advances (Bloomberg)

Swiss bank UBS warns of penalties as forex settlement talks begin (Reuters)

Yuan to Start Direct Trading With Euro as China Pushes Usage (Bloomberg)

Views
There is no shortage of cross currents in the overnight session.

The biggest standout is the near five standard deviation move weaker in USDCNY. This is closely followed by the near four standard deviation move in USDTWD. Over the weekend, pro-democracy protesters stepped up their demonstrations in Hong Kong, which caused government offices in the city to be shut down and a number of large banks (Standard Chatered, HSBC) to close their branches in the region. The new concern being raised is that it will force the Chinese government to step in and help control the situation, after it already said it would control the 2017 leadership elections. It will most likely not step back from that stance, even with an official protest from the rest of the world, and they will not want to look as if they were wrong in following this hard-line stance.

There was associated weakness in the Hang Seng (HSI) index, the clear worst performer in the overnight session. Additionally, the USDHKD FX cross moved almost eight standard deviations (still open for trading). Clearly, the market is taking this threat to be a very, very serious problem.

Away from the fighting, an article featured in the China Securities Journal (Translated Link) said that the government may use additional "targeted measures" and cut taxes to help manage the economy. The report also mentions that economic growth is expected to slow in the 3Q and for the rest of the year if the headwinds from property market weakness. Separately, in the Chinese Economic Daily, some municipalities are said to be increasing corporate taxes to help offset this headwind. Lastly, a PBoC deputy governor said in a speech yesterday that the central bank is preparing a new deposit insurance program and plans to ease deposit rate controls even further. Both of these explain the relative outperformance of domestic Chinese equities overnight.

The NZD is showing the largest negative risk-adjusted gain in currencies overnight following news that the Reserve Bank of New Zealand (RBNZ) already began intervening in the currency markets. A RBNZ report showed that the central bank sold NZ$521mm of FX in August, the most for a single month since 2007. The magnitude of sales underlines how serious the RBNZ is, and most likely other central banks will be, to fight the latest currency war.

Lastly, the Russian ruble continued to weaken overnight and is now at the high end of the range (for USDRUB cross, ie ruble weakness) for where the Russian central bank will begin intervening to strengthen the currency.

So I'll recap shortly the different governments intervening in their foreign exchange markets. Hong Kong, South Korea, Eurozone, Russia (expected), New Zealand, Australia (expected), Switzerland, China, and Brazil. As of last Tuesday's CFTC data, speculators now had record longs in DXY futures. But I have to say, given the above information I just told you, do you doubt the positioning?

Overnight Data:
- German CPI YoY (Sep prelim) up 0.8% vs 0.8% expected, prior 0.8%
-- MoM unchanged at 0.0% vs -0.1% exp, prior 0.0%
- UK net consumer credit (Aug) up 0.9B GBP vs 0.8B exp, prior 1.1B

US Economics (Time Zone: EST)
 
08:30 Personal Income (Aug) - expected 0.3%, prior 0.2%
08:30 Personal Spending - exp 0.4%, prior -0.1%
08:30 PCE Deflator YoY - exp 1.4%, prior 1.6%
08:30 PCE Core YoY - exp 1.4%, prior 1.5%
10:00 Pending Home Sales YoY (Aug) - exp 1.0%, prior -2.7%
10:30 Dallas Fed - exp 11.0, prior 7.1
11:00 Fed to purchase $2b-$2.5b notes in 7 to 10-year range
11:30 Treasury to sell $24b 3-month bills and $24b 6-month bills
 
Fedspeak:
 
9:00am Evans (dove, nonvoter) speaks in Chicago
 
Earnings
 
No major reports

Twitter: @MichaelSedacca

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No positions in stocks mentioned.

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