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EM Currencies See Biggest Daily Surge In Years As Dovish Fed Trumps Fundamentals
Well, what goes up must come down, which also means that what goes down must come up we suppose, which is why once again, the previously hapless ringgit and rupiah are heavily bid.
The two currencies have of course been caught up in the global EM turmoil, but as we documented extensively on Wednesday, the tide has turned a bit this week.
When things are going especially poorly, sometimes all it takes is the slightest glimmer of hope to ignite a rally, and between a poor NFP report in the US (and yes, EM FX is clearly one place where bad news in the US economy is most definitely good news as it forestalls an FOMC liftoff), “better” than expected trade data in Malaysia, a deceptively low read on capital outflows from China, and dovish FOMC minutes, this week has brought several such glimmers and so, everyone has apparently begun backing up the truck on Asia EM optimism.
Here are some highlights from Bloomberg:
- Indonesia’s rupiah and Malaysia’s ringgit lead Asian currencies higher as Dollar Index holds overnight losses; sovereign bonds drop in Australia, while interest-rate swaps decline in Singapore.
- Rupiah heads for 8.7% gain this week versus dollar; 13,500/dollar is a competitive level for exports and to manage inflation: Bank Indonesia’s Adityaswara; says markets have responded positively to policies that have sought to add FX supply onshore and to government’s commitment to structural reform
- Rupiah move due to external and domestic factors, such as Fed minutes and confidence in govt’s structural reforms, Senior Deputy Governor Mirza Adityaswara tells reporters in Jakarta.
- Significant move in rupiah means many market players cut losses
- Bank Indonesia sees Fed delaying rate rise to after 1Q 2016
- Rupiah surges 3.4%, most since 2008, to 13,428 per dollar, taking weekly rally to 9.1%, biggest since July 2001, according to prices from local banks compiled by Bloomberg.
- Central bank continues to intervene in market: BI Senior Deputy Governor Adityaswara; says 13,500/dollar is competitive level for exports and to manage inflation
- BI sees inflation at 4.1%-4.3% at year-end
- MOF scraps import tax for machinery and materials
- Pivot point at 13,828; USD/IDR support at 13,768, 13,656, 13,484 all breached; resistance at 13,940, 14,000, 14,172
- USD/IDR below lower end of Bollinger band at 13,746
- 1-mo. implied volatility jumps 76 bps to 14.7625%; avg for past 12 mos. is 10.9534%
- Rupiah 1-mo. forwards climb 3.9%, biggest gain since 2008, to 13,541 per dollar
- BI stepped up USD selling intervention in Sept. as IDR came under pressure, BNP Paribas says in note today; recent stabilization suggests some relief on FX reserves in Oct.; central bank’s net short forward liabilities likely to rise however as it widens scope of FX intervention
- Global investors bought net $49.7m in local stocks yesterday: exchange data
- Yield on 8.375% govt bond due Sept. 2026 slides 12 bps to 8.709%: IDMA data
So that's Indonesia. Here's the good news on Malaysia:
- Ringgit rises 2.9% to 4.1147 per dollar for weekly gain of 6.8%, most since 1998, according to onshore prices.
- Pivot point at 4.2321; USD/MYR breaks support at 4.1944 and 4.1531, next at 4.0741; resistance at 4.2734, 4.3111, 4.3901
- USD/MYR falls below cloud top on ichimoku chart
- 1-mo. implied volatility surges 231 bps to 18.7800%; past yr’s avg is 10.5696%
- 1-mo. forwards climb 2.6% to 4.1021 per dollar
- USD/MYR fell in response to dovish FOMC minutes last night and seems to be heading to next key support at 4.1000, Bank of Tokyo-Mitsubishi UFJ writes in note today; this week’s Aug. trade data another factor propping up MYR
- 1MDB didn’t commit offense regarding central bank probe, attorney general says
- Bank Negara sells MYR2b 364-day notes
- Yield on 3.955% govt bonds due Sept. 2025 falls 3 bps to 4.134%, based on Bursa Malaysia prices
- One-year IRS down 3 bps to 3.8450%; five-year contracts down 6 bps to 4.1750%
And so just like that, crosses that were previously spiraling towards oblivion at the quickest pace in nearly two decades are now rallying at the most dramatic pace in those same two decades. Of course this is what invariably happens when something suffers an outright collapse: the rebound always looks especially good by comparison.
But don't be fooled, the fundamentals here aren't favorable. Sure, there will be relief rallies, but it speaks to just how absurd the entire fiat regime has become when minutes from a central planner meeting that already happened (so despite the fanfare, let's not pretend like no one knew the committee was leaning dovish) are enough to generate huge FX rallies that, all else equal, would suggest there has been some seismic shift in the underlying factors that drive EM assets. Of course we understand all too well that what Janet Yellen says is indeed one these underlying factors, but that doesn't thereby mean that it should be. That is, this should probably be dictated by things like global trade, demand for raw materials exports, overall sentiment, etc. Those things have clearly (and rightfully) contributed to the EM malaise and so when you look at this week's rally the question you have to ask yourself is this: have those fundamentals really changed that much?
The answer of course, is "no" which is why you may want to fade this one before everyone suddenly remembers what's actually going on.
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According to my research, markets move in cycles, of which the table of 7 days (5 trading days) plays an important role. For example, when the 21, 35, 42, 63 day cycle line up, it’s Time to get ready for a change in trend (S&P500).
http://tripstrading.com/2015/10/09/sp500-how-cycles-take-their-time/
Today, OCT 8, points at a 7, 21, 42, 119 and 154 day cycle (TripsTrading Cycle Model, TTCM).
Tomorrow and Saturday represent a Bradley Model Date, OCT 9 and 10. According to the Bradley Model: October 9-10 – On these two Days there are very strong turns in both the Middle Terms and Declinations, and this could result in an especially strong turn.
If the total cycle lasts 63 days, the decline will last till OCT 26. The 1850 -30 Price Target is based on the Negative Reversal of SEP 30.
So the cycles seem lined up to change the short term trend.
Alrighty then.
Isn't a weakening U.S. dollar (and therefore a rise is U.S. dollar denominated paper and commodities) exactly what we were expecting to happen when the dollars, being replaced in global trade, returned back to the mothership of the continental United States?
I don't believe that the EM and Asian markets have rallied at all. The U.S. has just weakened significantly.
Wow, they are desperately trying to keep silver under $16.
If there's one seed left in that barrel of apples....they'll fight for it.
DEAD...
CAT...
BOUNCE.
We should layoff the FED and call them back when needed. They are doing nothing, operating cost of over $3.6B and a burden to earnings.
END THE FED by Ron Paul
one of the best books ever.
They should not be "layed off". They should be charged with high treason and thrown in jail for life or hanged in the traditional way to make a point that any other scumbag, criminal banksters will be dealt with in the same way if they ever try this bullshit again in America.
Yeah, if the SP500 makes a 100ish % retracement of the last few moves up and down it had. Purely technically speaking, the DJI clased yesterday well over the Sept 17 high made after the last FOMC minutes. I think that sentiment towards earnings will play a pretty big roll and it would not surpire me one bit if over the next week we doubled this move and reached all time new highs in one of the major indicies before it rolled over again. You have to remember that even though polls said that there was very little chance of a rate increase coming, it was still being priced into equities (even though we all knew that it would not happen). People are trying to blame the 'crash' on 8/24 on China, but I think there was a much larger reason for equity prices to do what they did. DB and Glencore and possibly some other large holders of commodity derrivatives probably reported that they are not doing so well with the down turn in prices and that we have a larger than 08 crises on our hands. I think the trick will probably be to reflate commodity prices which will mean devalue the dollar significantly, devalue the Yen further to support the carry trade, get EMs back on their feet again so they can make their interest payments. This in the long run won't fix much, but it will add maybe another thread to hold up the teetering mess we have on our hands currently. I think we did learn somethings from 08 and those are that manipulations have to be made a little before big banks go bankrupt so it is not so public a thing, that the people are not really concerned with the amount of ept that one person or business or govt may have, just as long as they can get more and that big money does not need to bother with pulling wool over the publics eyes because they are too self adsorbed to really care about what is going on around them as long as they can't directly see/feel carnage they are not going to say a thing.
About the public, do we really think it's the fault of a generation that they are more self adsorbed and less empathetic than past generations? How does that happen? It's called child rearing by the coroporate media, if you sit infront of the TV or drive down the road or go to school and are constantly being told I want, you want, have to have, how do you think you are going to turn out? We are all being turned into corporrate consumerists ultimately driven by our fleeting desires. Why do you think Youtube vids over 3 min are less popluar? These type of people are not going to be able to even form a thought that goes beyond the scope oftheir immediate perceived needs without a little help. Ugh, sorry I went off.
Anyhow, any move the SP500 makes will not surprise me either way. I know from analysis that as far as valuations are concerned it should be trading down around the 1000's and even that is on the high side. But, we don't folow fundamentals anymore. I think it will take something really big to get price down there again and that would kill too many big banks, so the one sided spoofing continues and as I have heard before, I think its pretty obvious that the whole thing is a big farce.
Until the printing and rigging stops, It's all Bullshit!!!
The Saudis are hurting, we prob have a deal with them to cut the rate of the dollar to inflate the price of oil so that they don't move to using some other currency. Without the petrodollar the banksters will have to make some major chages to their game and that prospect is becoming harder with things like the AIIB.
The Banksters are all over China already.
They never left Hong Kong and the reclamation agreement for that Island wasn't to get rid of the bankster influence, it was to reintroduce it to the mainland.
The banksters were the first into the AIIB.
Well now that the US is losing the middle east, I'm switching to rubles. By this time next year, Putin will dominate global oil markets.
Putin will dominate global oil markets.
Working on distribution as we speak. It's all gonna come down to who has the best terrorists.
you do realize that in the last six-decades the USSA has spent upwards of $18 tn.- $20tn protecting the ME Petro$$$' hegemony
Inflated prices that have been held at bay are on the horizon. This will soon be added to all the domestic prices of foods and goods that have already been ramping up.
USD getting dumped on news of unlikely rate hike.
When they do raise rates (whenever that is) that's when we will know where the cracks in this shit show will give way.
From the Russian standpoint, the change in the price of oil and consequent change in the Ruble exchange rate has already more than paid the costs of the Syria campaign.
Learning from the Yanks that wars pay financial benefits?