In our Investment Bank Outlook each week, we bring you a selection of perspectives from leading investment banks to outline the key issues and directional views for the week ahead. These excerpts, taken from research notes, will cover issues such as key market themes, economic releases, as well as any major trends and levels to watch. Please note, this material, which does not reflect the opinions of Tickmill, is provided for educational purposes only and should not be taken as an investment recommendation.
National Australia Bank
Friday’s US equity price action was all about consolidation of recent gains, the UST curve bull steepened with Fed repo action in focus while the USD was broadly weaker. Over the weekend the PBoC increased its efforts for banks to use the LPR as the pricing benchmark.
The S&P 500 ended the day unchanged, holding its record high (3240.02) and closing the week plus 1.08%.The NASDAQ slipped 0.17%, after making a new intraday record high but ended the week 1.34% higher while the Dow was +0.08%, up 0.95% on the week.
Declines in UST yields were led by the front end of the curve with the 2y rate down 4.9bps to 1.5812% while the 10y note closed the week at 1.872%, 1.8bps lower. The NY Fed added $25.8bn in liquidity, helping the end of the turn repo rate down to 2.7% from a recent peak of 4.25%.
The NY Fed will offer its last repo operation for 2019 on Monday with expectations for the Bank to offer as much as $260bn, although the consensus view is for the recent trend to continue with the offer likely to be undersubscribed as banks appear to be well cashed up ahead of the new year.
Abundant USD liquidity, pushing shorter dated US yields lower and helping keep risk sentiment buoyant, plus a stronger EUR and GBP, appear to be the main themes for the broadly softer USD at the end of last week. The DXY ended Friday down 0.63% to 97.014 while BBDXY closed -0.43% at 1191.18.
AUD and NZD also join the party advancing 0.50% and 0.45% respectively. The AUD opens the new week at 0.6977, after trading to an overnight high of 0.6987 on Friday. NZD starts the new week at 0.6697 after trading to a high of 0.6711 during Friday’s NY session, this was the first time the pair traded with a 67 handle since late July. A pretty light economic calendar, plenty of USD liquidity and buoyant equity markets are helping antipodean currencies perform at the moment, question now is whether this momentum can be sustained early next year.
No new Brexit news, appears to be good news for GBP with cable now trading at 1.3093, up 0.65% on Friday and well above its 1.2905 seen early last week. The euro is also looking perky, up 0.71% on Friday and now trading at 1.1178.
On Saturday the PBoC announced that “starting from 1 March 2020 financial institutions should engage in negotiations with existing floating-rate loan clients to change the pricing benchmark, and shift from the original contractually stipulated pricing method to use of the LPR as the pricing benchmark. Bloomberg suggests the move could lower costs for some of the 152 trillion yuan ($21.7 trillion) in yuan-denominated outstanding loans held by financial institutions and boost economic growth.
Citi
The preliminary estimate of month-end FX hedge rebalancing flows calls for net USD selling against all major currencies on Tuesday, 31 December.
Most equity markets have made gains in local currency terms this month while government bond investments, as measured by the FTSE Russell GBIs, have all experienced modest losses.
The net USD selling signal is mainly driven by the rally of US equities month-to-date, which leads to increasing hedging needs on US equities by foreign investors. Given a smaller magnitude of fixed income market moves, we estimate net fixed income flows to be relatively modest, leaving a moderate net USD rebalancing signal at around 0.5 standard deviations.
The signal to buy EUR vs USD is the strongest among G10, currently at 0.64 standard deviation. On the other hand, the signal to buy JPY vs USD is the weakest at 0.36, mostly due to lower Japanese hedge ratio assumptions.
Besides it being year-end, other possible risks at the end of the month come from US housing data and consumer confidence data releases. There are no significant data releases to watch out for towards month end for the other economies
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
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Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!