China Rumour Mongering on a Friday …

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Illustration 1: If CNY trading band is widened .. be careful what you wish for as CNY weakened previously!

Rumour #1: Heading into the G20 Finance Ministers meeting this weekend, the first rumour is that China will probably widen the yuan’s trading band within the next three days after central bank Deputy Governor Yi Gang signaled policy makers will loosen control over the currency.  China is always astute in playing its cards leading to any G20 Finance Ministers meeting to avoid being labelled as a currency manipulator and be in everybody’s good books.  Asianmacro think this is possible but do be mindful that it can also mean two-way volatility where CNY can also depreciate and not just appreciate in a straight line.

Rumour #2: There is report that MSCI has had a meeting with China SAFE & CSRC in allowing China A-shares to be included in MSCI EM index. With the recent CNY appreciation trend, the talk about pushing back RQFII approval process, the fully deregulation of QFII mechanism and the opening of capital account would still be a medium term event if not a long term occurrence.  The source of the rumour can be attributed to this article http://finance.sina.com.cn/stock/yjdt/20130418/213915196798.shtml. It is funny how rumours always starts on Friday and spread like wild-fire by brokers who work their phones tirelessly starting with the calls to their top clients and working down the list.  Do note that brokers are not necessarily there to ”warn” you of things but their incentive is to get you to do something and execute / trade more so that volumes are churned and they earn their commission dollars! Asianmacro think this rumour is long in the tooth and probably not today or any more likely in the near future ….

SHCOMP rallied and spike up higher on these rumours and dragged everything else along.  I will not be a buyer of these rumours especially #2 …. and will use any stupid spike up in risky assets to sell them short!

P.S. Will be looking at good levels to short CNY NDF and also add to DAX and SPX and AS51 shorts on rally due to the China rumours and feel good.

 

*Asianmacro is a beach bum managing his own wealth.  Besides deciding what to have for lunch (or hitting the gym sometimes), he is mostly found listening to loud music while trading and investing for himself.  While every care has been taken in preparing the information in and/or materials, such information and materials are provided “as is” without warranty of any kind, either express or  implied. In particular, no warranty regarding accuracy or fitness for a purpose is given in connection with such information and materials. The opinions expressed do not constitute investment advice and independent advice should be sought where appropriate. In no event will Asianmacro be liable to you for any direct or indirect or any other damages of any kind arising from or in connection with your reliance on any information in and/or materials attached herewith.  Asianmacro may already have or intend to have a trading or investment position in the financial instruments or products referred to in this communication.  This is not intended as an offer or solicitation for the purchase or sale of any financial instrument and Asianmacro may also have interests different from or adverse to your interests.

The EUR/AUD FX Cross and VXO alarm bells are ringing

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Illustration 1: EUR/AUD FX cross exhibit high correlation & R-square with VXO … predictive ability of unknown stresses ahead in financial markets when both heads higher?

There are a number of price movements of various financial instruments that Asianmacro had observed before that I simply do not have a logical explanation that satisfy either a scientific mathematical finance approach or a qualitative explanation.  Perhaps I do not have the eloquence nor knowledge of those strategists or economist in coming up with convincing arguments for everything that happens since my pursuit is simply on whether to buy, sell or hold in making profits as the sole objective.

One phenomena that I chance upon is the propensity for EUR/AUD FX cross together with VXO (http://www.cboe.com/micro/vxo/) to always head higher when markets enter into some uncertainty especially when negative events start occur or develop in the financial markets.

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Illustration 2: EUR/AUD FX cross heads higher post Gold collapse since 12 April 2013 & Boston bombings …. sign of potential further negatives ahead to develop in markets?

I will be very cautious and on a somewhat ”sell risk on rally” mode across various asset classes especially stocks and commodities as this unexplained EUR/AUD & VXO indicator is flashing on my radar screen.  Whether it is due to AUD/USD coming off and under pressure due to poor China economic data (http://www.scmp.com/business/money/markets-investing/article/1215611/investors-dump-stocks-poor-china-economic-data) …. or EUR/USD heading higher … Damn how can that be with uncertainty in EU still smarting from Greece, Cyprus, …… ?  It does not matter … I rather be lucky than smart!

 

 

*Asianmacro is a beach bum managing his own wealth.  Besides deciding what to have for lunch (or hitting the gym sometimes), he is mostly found listening to loud music while trading and investing for himself.  While every care has been taken in preparing the information in and/or materials, such information and materials are provided “as is” without warranty of any kind, either express or  implied. In particular, no warranty regarding accuracy or fitness for a purpose is given in connection with such information and materials. The opinions expressed do not constitute investment advice and independent advice should be sought where appropriate. In no event will Asianmacro be liable to you for any direct or indirect or any other damages of any kind arising from or in connection with your reliance on any information in and/or materials attached herewith.  Asianmacro may already have or intend to have a trading or investment position in the financial instruments or products referred to in this communication.  This is not intended as an offer or solicitation for the purchase or sale of any financial instrument and Asianmacro may also have interests different from or adverse to your interests.

Time to OZ …. AUD has probably lucked out!

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Illustration 1: AUD/USD vs. IMM Commitment of Traders (Non-Commercial) positions vs. AUD/USD 1-month risk reversal vol skew … all points to AUD at risk of correction lower

Asianmacro has previously opined on Australia and AUD .. the lucky country that happened to have all the minerals underground that China and the rest of the world needed http://tradehaven.me/2013/02/12/to-oz-or-not-to-oz/.  The range for AUD/USD is 1.03 – 1.05 on the narrow with risk of overshooting on either side especially the lower bound on any significant China flu or global risk off.

Australia employment report is out this coming Thursday 11 April 2013 and I don’t know about you but with all the global economic data hitting a softer patch especially on the employment front, and with commodities (precious, base and softs) correcting lower over the past month, I will be damned surprise if Australia can be so lucky again !  From Illustration 1: the market in AUD/USD still seem pretty long from the IMM CFTC commitment of traders report (non-commercial).  In addition, there is still a skew to calls over puts in the options market.  There exist relatively cheap opportunities to be playing Australia turning on its luck via outright short AUD/USD or put options spreads and strategies like 1.035 put RKO (reverse knock out) 1.0550.  We target 1.01 level in the next 1 month if this plays out well enough for us.

The nail in the coffin I think for Australia is the recently announced changes to the Superannuation plan where new taxes (where there wasn’t are introduced) to rob the chaps down under.  *Please see summary below (where essentially Superannuation contribution are after your earned income already already taxed and now you are taxed again on your returns from your superannuation that is supposed to support your retirement!)

Superannuation changes

  • From July 1 2014, earnings on superannuation pensions and annuities of more than $100,000 annually will be taxed at 15 per cent, instead of being tax-free.
  • Superannuation earnings below $100,000 a year will remain tax-free and this threshold will be indexed to the Consumer Price Index.
  • The change will not apply at the accumulation stage.
  • The Government says around 16,000 people will be affected by this reform, which will save around $350 million over the four-year forward estimates period.
  • From 1 July 2013, people aged 60 and over will see increased concessional caps from $25,000 to $35,000.
  • Excess concessional contributions will be taxed at the individual’s marginal rate, plus an interest charge.
  • The Government says this will mean individuals are taxed on excess concessional contributions in the same way as if they had received that money as salary or wages.

There are some opinion on this matter http://www.afr.com/p/business/financial_services/super_tax_may_hit_accounts_under_3xxgtzhxnNCaKTJU67cMHP.  If I am a chap down under, I will find various ways and means to get all my money out of the country before it is rounded up unfairly by the Australian government … no surprises why so many Australian billionaires have or are thinking of moving to Singapore!

http://www.globalpost.com/dispatch/news/business/120609/australian-economy-billionaire-nathan-tinkler-singapore-tax-rate-asia#1

http://blogs.wsj.com/scene/2012/08/01/australian-billionaire-sets-new-property-records-in-singapore/

And we definitely expect to see more Aussie names in the richest Singapore residents list shortly http://www.altiusdirectory.com/Society/top-singapore-richest-list.html

 

 

*Asianmacro is a beach bum managing his own wealth.  Besides deciding what to have for lunch (or hitting the gym sometimes), he is mostly found listening to loud music while trading and investing for himself.  While every care has been taken in preparing the information in and/or materials, such information and materials are provided “as is” without warranty of any kind, either express or  implied. In particular, no warranty regarding accuracy or fitness for a purpose is given in connection with such information and materials. The opinions expressed do not constitute investment advice and independent advice should be sought where appropriate. In no event will Asianmacro be liable to you for any direct or indirect or any other damages of any kind arising from or in connection with your reliance on any information in and/or materials attached herewith.  Asianmacro may already have or intend to have a trading or investment position in the financial instruments or products referred to in this communication.  This is not intended as an offer or solicitation for the purchase or sale of any financial instrument and Asianmacro may also have interests different from or adverse to your interests.

The Schizophrenic EUR … Time to Short the Spike !

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Illustration 1: EUR/USD schizophrenic 2 big figure range on 4th April 2013 .. initial plunge followed by spike

The FX market is always taken to be the most efficient in discounting news ahead of all other asset classes.  However, Asianmacro having cut his teeth on the FX and rates market years ago only understand too well that it is also a fallacy since the FX market tends to over simplify things based on ”sound bites” and it often over-reacts.  FX markets are always about daily to intra-day short term momentum and ”’hunting of stops to trigger” in each hour and never about medium term (and God forbids any association with long term valuation discovery!).  As such, from Illustration 1, the schizophrenic plunge and then spike in EUR/USD around the ECB press conference yesterday is just another day in the park.

Asianmacro does not believe that ECB will not at some point find ways to drive EUR weaker as the Central Banks of the world are engage in competitive devaluation ”currency wars” whether openly like BOJ or stealthily like the U.S. Federal Reserve in the past.  Europe cannot afford a strong EUR and short of allowing a breakup and letting the Lira, Peseta and Franc back to the realm, the EUR needs to be weak again to give the mix bag of countries in EU any chance of staying together.

 

 

*Asianmacro is a beach bum managing his own wealth.  Besides deciding what to have for lunch (or hitting the gym sometimes), he is mostly found listening to loud music while trading and investing for himself.  While every care has been taken in preparing the information in and/or materials, such information and materials are provided “as is” without warranty of any kind, either express or  implied. In particular, no warranty regarding accuracy or fitness for a purpose is given in connection with such information and materials. The opinions expressed do not constitute investment advice and independent advice should be sought where appropriate. In no event will Asianmacro be liable to you for any direct or indirect or any other damages of any kind arising from or in connection with your reliance on any information in and/or materials attached herewith.  Asianmacro may already have or intend to have a trading or investment position in the financial instruments or products referred to in this communication.  This is not intended as an offer or solicitation for the purchase or sale of any financial instrument and Asianmacro may also have interests different from or adverse to your interests.

Did BOJ just saved the world ? …. For now …

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Illustration 1: Key Central Banks’ Balance Sheet as % of GDP … BOJ is the Champion and still going strong!

It was looking bleak in Asian markets in the morning with heightened geo-political tension overnight on the news of the U.S. missile defense system deployment to Guan that knocked S&P500 futures off its pedestal and KOSPI down 2% and looking to fall more precipitously.  China and Hong Kong markets were also closed for 清明节 (Qing Ming festival), the annual ”tomb sweeping” custom of praying to one’s deceased ancestors that can potentially usher in the ”Ting Hai (丁蟹) effect” too from 4 April 2012 onwards. http://tradehaven.me/2013/04/01/be-warned-the-ting-hai-%E4%B8%81%E8%9F%B9-effect-may-kick-in/.

But all that was to change with the ever ready-to-please his political masters, BOJ (Bank of Japan) Governor Kuroda when he delivered the QE (Quantitative Easing) manna from heaven at the conclusion of his two day BOJ policy meeting. http://uk.reuters.com/article/2013/04/04/uk-markets-forex-idUKBRE92L08Y20130404 

From above Illustration 1, BOJ is on a viagra inducing roll by increasing its balance sheet even further in both absolute and relative terms to Japan’s GDP.  We can see that the U.S. Federal Reserve has sort of reached a plateau in its QE ballooning of its balance sheet as % of U.S. GDP.  In fact, ECB (European Central Bank) and BOE (Bank of England) have both reduced their respective aggressiveness in QE where their % of GDP has turned and are actually heading lower since Q4 2012.

With the ECB policy meeting announcement due in a couple of hours, it will be interesting what ECB Chief, Trichet will deliver.  While Asianmacro do not expect a rate cut (Good Lord if he does and we will be in high heavens in bunds and DAX if he does that!), Trichet is likely to sound reassuring dovish in the statements and in putting some expectations of that out.  The key is to weaken the EUR (*return of beggar-thy-neighbour FX depreciation policy) as it will indirectly be a ‘devaluation’ option for the Club Med countries that are facing the economic stresses at the moment without the need for them to leave the EUR in going back to their Lira, Peseta, Franc etc.

While it does not change the bigger picture that I have presented in my previous post over the last 2 weeks, in the next hours – days, just be prepared for a short term liquidity boost expectations rally in stocks and for USD to continue to strengthen. Long USD & wear diamonds ! http://tradehaven.me/2013/03/14/beware-the-ides-of-march/

 

 

*Asianmacro is a beach bum managing his own wealth.  Besides deciding what to have for lunch (or hitting the gym sometimes), he is mostly found listening to loud music while trading and investing for himself.  While every care has been taken in preparing the information in and/or materials, such information and materials are provided “as is” without warranty of any kind, either express or  implied. In particular, no warranty regarding accuracy or fitness for a purpose is given in connection with such information and materials. The opinions expressed do not constitute investment advice and independent advice should be sought where appropriate. In no event will Asianmacro be liable to you for any direct or indirect or any other damages of any kind arising from or in connection with your reliance on any information in and/or materials attached herewith.  Asianmacro may already have or intend to have a trading or investment position in the financial instruments or products referred to in this communication.  This is not intended as an offer or solicitation for the purchase or sale of any financial instrument and Asianmacro may also have interests different from or adverse to your interests.