Commode currencies

Wednesday, June 08, 2011

Sorry for the lack of posts, but unfortunately day-job workload is pretty heavy. We will have to be brief today too.

Bounce Tuesday was a bit of a damp squib and today looks as though the wheels are coming loose again. The Beard has shot a few QE3ers, SPX appears to have confirmed the 1290 break and USDJPY is threatening to apply the red hot poker to a few derrieres. It had been looking equity-led up till now, but at last other assets are joining the fray. Key levels are under threat in various places but especially noticable is the break in European banking stocks.

Last week's thoughts on commodity currencies appear to be playing out. The seemingly bulletproof trading in anything which exports rocks and has a high coupon is softening along with noise about debt ceilings, eurowoes and the general slowing down of data. No doubt with the China "muni" stuff going tabloid your average carry junkie is being jolted awake by bad dreams of mid 2008. The only commodity currency to survive pretty unscathed is NZD, which could be read as indicative of a market that is not actively going short commodities and the associated FX, but just getting out of those monster longs. TMM believe that, outside New Zealand and Japan, it is pretty rare to find anyone who ever actively goes long NZD, with the chosen positions either being short or flat. Therefore, there are minimal speculative long positions to be unwound. TMM would expect any distressed NZD selling to therefore appear through the JPY crosses, when Mrs Watanabe and her Women's Institute carry club have to press the stop loss button. So if/when NZD falls over we will know that these moves are beyond just a commodity positional washout.

TMM note that the trend for the newswires to collar junior desk jockeys at quotable institutions continues. After yesterday's personal comments from a teaboy at SAFE, they managed to collar a clerk at Moody's and have her say that if something happened, something else could happen and finally that COULD mean that the UK's AAA rating MAY be under threat and would you like milk and sugar? Which had the grown-ups at Moody's swiftly apologising and offering to clear up the mess their kid had caused. These guys really ought to be closed down, but more on that tomorrow.

Right - back to work, as we happily watch commodity currencies go down the pan.

Posted by Polemic at 2:00 PM  


Unwind of said yen carry trades is probably partly responsible for the aforementioned red hot poker being applied to USDJPY longs.... "DON'T PANIC, MRS WATANABE...! "

Kyle Bass on Bloomberg today expounding on his love for the ultimate Widowmaker*, so it's only natural that JPY would be bid, I suppose.

Crude defying logic and gravity again.

* Short JGBs

Leftback said...
3:08 PM  

first bovespa, shanghai, sensex (ergh ... brics) rolled first on policy tightening to control inflation ... next commodity related equity markets are starting to roll over .. i.e. tse, asx and ftse as commodity related valuation come under stress.

but the real line in the sand is when the high growth/liquidity infused stock markets start rolling over and they are next to keep an eye on ... like thailand/kospi, OMX/turkey and russel/nasdaq. then we we have a party.

Anonymous said...
4:25 PM  

and we may not get just yet (few months) the required loosening that should come from lower energy prices ... due to middle east/the beard/poor energy policy everywhere ...

case in point UK nat gas prices going up ... further aggravation of consumer wallets being squeezed.

Anonymous said...
4:30 PM  

+1 TMM ... The peanut gallery stands corrected ... At least, the usdjpy now ACTs like a carry funder, but alas moving in the "wrong" direction ;) ...

It All looks very wobbly with spoos at 1280...

CV said...
4:55 PM  

From New Zealand, all we have heard about in the past few days is that China now wants to hold some of their reserves in NZD. This has caused some commentators to start calling for the NZD to reach parity with the U.S. dollar, which is completely ridiculous on the fundamentals, but with China holding reserves worth something like twenty-five times the size of the New Zealand economy, I suppose that they can set the price of the New Zealand dollar to whatever they want it to be.

Anonymous said...
5:20 PM  

NZ proximity to Australia leads to some interesting economic peculiarities. It is mainly geography, I suppose. Odd that NZD is considered a commodity currency, considering how much stuff they have to import. The major NZ exports are cheese, butter, lamb, lumber and giant rampaging rugby players...

Leftback said...
6:09 PM  

It seems more like out of AUD and straight into NZD. not only is AUD/NZD down sharp, but NZD is testing new high against USD. I am not sure this is Jap housewives' normal habbit, seems some boys out there are trying to chase the last chance for a June bonus.

Anonymous said...
1:22 AM  

"Odd that NZD is considered a commodity currency, considering how much stuff they have to import. The major NZ exports are cheese, butter, lamb, lumber and giant rampaging rugby players..."

Cheese, butter, lumber (and milk, the most important one - which you forgot to mention) ARE commodities (hey, they all trade on the CME :) ). Granted, most people don't think of them first when the word "commodity" is mentioned, but they are leveraged to the rising incomes in emerging markets as many other commodities are.

The local dairy cooperative (Fonterra) controls something like forty percent of the global milk trade, and their payouts to farmers represent about (an incredible) six percent of GDP, so the New Zealand economy is very sensitive to the prices of these.

Anonymous said...
1:28 AM  


NZ rugby players: giant and rampaging they may be. But chances are they will require a gas mask by the semi-final of the world cup ;)

Skippy said...
10:41 AM  

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