Credit Agricole
Asia overnight
China’s President Xi Jinping delivered the first doctrine on Communist Party history by a Chinese leader since 1981, which our China economist believes further solidifies the political foundation for his third term. While in line with market expectations, there seems to be hope among investors that this signals that the worst may be over for Chinese authorities’ crackdowns on technology, education and property companies. Holding back investor sentiment was a warning from US President Joe Biden to the EU that Russia could be preparing to invade the Ukraine based on intelligence of a Russian troop build-up on the two countries’ border. At the time of writing, most Asian bourses and S&P 500 futures were trading higher. It was a range-bound session in G10 FX with CHF, NOK and JPY slightly underperforming the USD.
USD: rampant inflation and its impact on confidence The USD is set to end the week as the top performer of the G10 FX space in the wake of more buoyant US CPI release and the subsequent rebound in US rates. Yet, today the advanced University of Michigan survey for November may offer the latest evidence about the not-so-pretty face of high inflation readings, and how they eventually impact purchasing power and consumer confidence. Any material deterioration could then raise concerns about the sustainability of frothy spending into 2022, while any signs that inflation expectations have lost further anchor could increasingly call into question the Fed’s transitory assessment on inflation. That being said, we doubt that the Fed would be able to meet the already hawkish market expectations and abandon its ‘patient’ view on rates before we see further improvement from the US employment data in particular. This could keep US real rates and yields deeply negative and ultimately hold the latest rally of the overbought and overvalued USD in its tracks.
CIBC
FX Flows
Asia kicked off the session with US Treasuries resuming selloff. AUD¥ was bought from 83.15, this helped the $Yen to soak up offers above 114.10. Initial offers above capped the USD but strong demand for the Tokyo fix soaked them up and brought the USD to 114.25. There has been talks that buying came from importers, especially those who had their USD call options knocked out. Activity slowed down, I am sure we will continue to see offers lined up to 114.50, next resistance is at 114.70. Option strikes at 114.00 for $1.75bn expires today.
AUD$ weakened after the Tokyo fix, bids surrounding 0.7290 got filled and the pair drifted slowly towards 0.7280. Rumourmongers mentioned bids scattered below from Aussie corporate accounts. Intraday support comes in at 0.7243. Nothing impressive in the Aussie option diary. AUD¥ was bought early part but as soon as the demand dried up, the ¥-cross receded back to where it all began. Decent support at 83.00, break of that will guide the path to 82.15.
EUR$ slipped a little after Tokyo opened, and felt like some bids in the 1.1430s. There is a EUR put strike at 1.1460 maturing today worth €1.42bn. Talk of exotic option strikes at 1.1425 and 1.1400.
The Times said UK government will renew efforts to get a deal on the controversial Northern Ireland protocol and enter intensive talks over the next few weeks. GBP$ was sold after the Tokyo opened, I believed we have some option-related bids around 1.3350. About £800mio of 1.3320 put strikes will mature today.
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