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27 Jan 2014
Flash: No respite for high beta FX - Societe Generale
FXstreet.com (Barcelona) - Kit Juckes, Global Head of Currency Strategy at Societe Generale believes that coming market instability may be centered around slower EM growth and potential Fed tapering.
Key Quotes
"As Janet Yellen takes over the helm of the global economy this week, she could be tempted to quote Oliver Hardy at Stan Bernanke. The FOMC's first decision under new management will be whether to press ahead with a further reduction in the pace of bond-buying amid emerging market turmoil. ‘EM' economies now account for a lot more of global GDP than they did the last time we had an EM crisis, but if history is any guide the Fed will focus on the domestic not the international environment."
"With Treasury yields down and the recent US economic data encouraging, the FOMC will probably push ahead and reduce the pace of buying to $65bn per month. And that won't help ease market tension. Market confidence crises don't often just blow over quickly on their own without policy action."
"Absent help from the Fed, and in the run-up to the Chinese New Year, any respite will probably be temporary, Furthermore, the current period of market turmoil may have slower EM growth and the prospect of less accommodative Fed policy at its heart, but it has a lot of regional sub-drivers: China's shadow banking system, politics in Turkey, strikes in South Africa, more politics in Argentina, to name but a few. There are too many fires burning to expect them to all blow out simultaneously."
"It's hard therefore, to see respite for high-beta currencies. In the current climate, the G10FX winners will be USD, EUR, CHF, and JPY. Weight of positioning may allow a bounce for CAD and AUD at the start of the week but these represent opportunities to sell in due course. Indeed, with yet another poor trade balance announced in Japan, we have seen a bounce in AUD/JPY and CAD/JPY which short-term traders may see as an opportunity to sell into"
Key Quotes
"As Janet Yellen takes over the helm of the global economy this week, she could be tempted to quote Oliver Hardy at Stan Bernanke. The FOMC's first decision under new management will be whether to press ahead with a further reduction in the pace of bond-buying amid emerging market turmoil. ‘EM' economies now account for a lot more of global GDP than they did the last time we had an EM crisis, but if history is any guide the Fed will focus on the domestic not the international environment."
"With Treasury yields down and the recent US economic data encouraging, the FOMC will probably push ahead and reduce the pace of buying to $65bn per month. And that won't help ease market tension. Market confidence crises don't often just blow over quickly on their own without policy action."
"Absent help from the Fed, and in the run-up to the Chinese New Year, any respite will probably be temporary, Furthermore, the current period of market turmoil may have slower EM growth and the prospect of less accommodative Fed policy at its heart, but it has a lot of regional sub-drivers: China's shadow banking system, politics in Turkey, strikes in South Africa, more politics in Argentina, to name but a few. There are too many fires burning to expect them to all blow out simultaneously."
"It's hard therefore, to see respite for high-beta currencies. In the current climate, the G10FX winners will be USD, EUR, CHF, and JPY. Weight of positioning may allow a bounce for CAD and AUD at the start of the week but these represent opportunities to sell in due course. Indeed, with yet another poor trade balance announced in Japan, we have seen a bounce in AUD/JPY and CAD/JPY which short-term traders may see as an opportunity to sell into"