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.
Citi
Month-End Rebalancing
On FX the preliminary estimate of month-end FX hedge rebalancing flows notes a marginal need to sell USD against all G10 currencies except JPY on October 31. Overall selling USD against GBP is the strongest signal this month, although at +0.48 std. dev, remains relatively weak by historical standards. In a continuation of Septembers moves, most equity markets have gained on average while almost all fixed income markets have underperformed. Swedish and Japanese equities in-particular showed strong gains while UK bonds lost nearly -2% amidst Brexit driven volatility.
- On asset rebalancing, CitiFX Quant notes October month-end is likely to see a rotation from equities into fixed income although the signal is weak at just +/-0.2 historic std. dev. CEE and European equities are likely to see the strongest equity outflows although overall CEE bonds receive the highest outflow signal at a moderately strong -1.4 historic std dev. Developed market bonds and Canadian equities are set to receive most of this as inflows. The FX impact is likely to be USD selling against EUR and GBP at month-end.
RBC
Day ahead: As we go to press, Governor Lowe is speaking in Canberra. AU CPI is the data highlight tonight (see AUD). There is no set timing for the UK election vote but it is likely to happen well after the London close (the order paper says it could go on “until any hour”). Also today, the UK formally gets its Brexit extension assuming no other EU member state objects by this afternoon’s deadline (no one expected to do so).
JPY: Nippon Life is the last, and largest, of the lifers to report H2 FY investment plans. The plans imply strongly that its hedge ratio is still falling, supporting our core view of USD/JPY higher. Nissei said it plans to increase holdings of unhedged foreign bonds, particularly on dips in USD/JPY, and to sell hedged USTs and reduce holdings of hedged bonds generally. It described US hedging costs as “still high” and the data it released suggest it is currently around 60% hedged – historically, a relatively high ratio.
USD/CAD retains an offered tone with risk sentiment remaining buoyant as US stocks (the SPX) close at a new all-time high. Support at 1.3053 remains in play in this regard, with a close below here opening up the July double bottom at 1.3018. Resistance at 1.3145 is expected to attract selling interest while risk sentiment stays positive.
AUD: Q3 inflation is due tonight and should get a lot of attention. The RBA is finalising its latest set of macro forecasts to be published next week in the Statement on Monetary Policy. Our AU economists expect the key core measures (trimmed mean & weighted median) to have remained modest in Q3, rising just 0.4 q/q and y/y inflation steady at 1.4%. For headline we expect a slightly stronger 0.6% driven by some stronger seasonals in the quarter (including the 3% yearly minimum wage increase and 12.5% tobacco excise bump-up) and some impact from a lower currency.
ZAR: Today, South Africa is expected to release the “special paper” on Eskom, which will outline the government’s plan for turning around the SOE. This will be one of the key inputs for Moody’s decision (expected on Friday). We are short EUR/ZAR in our EM trade of the week.
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!