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THE ASIA FX/RATES DAYBOOK: FX/RATES DAYBOOK ASIA: Turkey Contagion Fails to Materialize

(Bloomberg) — The U.S.-Turkey spat that sent the lira plunging to start the week had eased by the end of the U.S. session, while concerns of a broader emerging-market selloff largely failed to materialize. Volumes were thin, with U.S. bond markets closed for Columbus Day. The pound was the day’s biggest winner, as short positions initiated last week across the board were unwound, according to traders.

WHAT TO WATCH

  • We could get a glimpse of China money supply, loans and foreign direct investment as soon as today; BOJ’s Kuroda to speak, while Japan will report current account and trade balance
  • Also on deck: Australia consumer confidence

MONDAY TRADING SESSIONS

  • The dollar was little changed, as losses against the pound and euro on thin volume was countered by weakness in key EM currencies, led by TRY, BRL and MXN.
  • Core EGB yields were marginally lower; Spain bonds outperformed ahead of Catalan leader meeting with lawmakers on Tuesday; Italy bonds follow Spain higher, with decent buying seen during morning session

TOP OVERNIGHT NEWS

  • While damage was done to Turkish assets, most other emerging- market currencies and stocks showed little reaction after the nation became embroiled in a diplomatic spat with the U.S. Many strategists were similarly sanguine, underscoring a changed reality in developing markets, in which trading is much more nuanced.
  • Republican lawmakers are expressing unease over the limited details about middle-class relief in the tax framework their leaders released last month
  • Catalan secessionists have opened a second front in their campaign against the government in Madrid, urging the opposition Socialists to forge a coalition to oust Spanish Prime Minister Mariano Rajoy, according to two people with knowledge of the outreach. Spain’s government said it stood ready to intervene and reassert control over Catalonia, warning that the rebel region risks economic chaos if it presses ahead with its bid for independence.

KEY VIEWS

  • The feud between President Donald Trump and Senator Bob Corker may mean tax reform is dead: Cowen
  • The outlook for emerging markets is still bullish despite the Turkey-U.S. diplomatic spat: UBS Wealth Management
  • The lira’s decline probably won’t trigger a broader selloff across EM assets, even though investors are becoming more nervous: Columbia Threadneedle
  • The recovery in term premium for Treasuries still faces headwinds: Deutsche Bank

DATA RELEASED MONDAY

  • China’s foreign-exchange reserves rose for an eighth consecutive month in September as the pressure of cash outflows eased while the yuan strengthened

ECONOMIC DATA (All times HK):

  • Oct. 10-Oct. 18: China Sept. Money Supply M2 YoY, est. 9.0%, prior 8.9%
    • New Yuan Loans CNY, est. 1.23t, prior 1.09t
    • Foreign Direct Investment YoY CNY, prior 9.1%
  • Oct. 10-Oct. 16: Pakistan Sept. Exports YoY, prior 25.2%
    • Imports YoY, prior 27.6%
  • 5:45am: New Zealand Sept. Card Spending Retail MoM, est. 0.65%, prior -0.2%
  • 6:30am: Australia Oct. ANZ Roy Morgan Weekly Consumer Confidence Index, prior 113.4
  • 7:50am: Japan Aug. BoP Current Account Balance, est. ¥2.22t, prior ¥2.32t
    • Trade Balance BoP Basis, est. ¥264.9b, prior ¥566.6b
  • 8:30am: Australia Sept. NAB Business Confidence, prior 5
    • Business Conditions, prior 15
  • 9am: Philippines Aug. Exports YoY, est. 8.0%, prior 10.4%
    • Imports YoY, est. -3.2%, prior -3.2%
  • 12:30pm: Japan Sept. Bankruptcies YoY, prior -11.98%
  • 1pm: Japan Sept. Eco Watchers Survey Current SA, est. 49.9, prior 49.7

CENTRAL BANKS

  • 8:30am: Japan BOJ Kuroda speaks at Branch Managers’ meeting
  • 9:10am: BOJ Outright Bond Purchase 1~3 Years
    • BOJ Outright Bond Purchase 3~5 Years
  • 11:20am: Australia RBA’s Debelle Gives Speech in HK Via Video Link

BOND SALES/PURCHASES (All times HK):

  • For corporate bonds, see New Issue Monitor
  • 8am: Australia Plans to Sell I/L Bonds
  • 10:30am: Korea to Sell KRW 1.35 Tln 5-Year Bond
  • 11am: China Plans to Sell 5-Year Saving Bonds
  • 11am: China Plans to Sell 3-Year Saving Bonds

MARKETS AS OF ~3:44am in Hong Kong

  • USD/JPY -0.1% to 112.54 (range 112.33-112.79)
  • EUR/USD +0.2% to 1.1751 (range 1.1718-1.1756)
  • AUD/USD -0.1% to 0.7759 (range 0.7748-0.7782)
  • NZD/USD -0.3% to 0.7070 (range 0.7051-0.7086)
  • USD/CAD +0.1% to 1.2544 (range 1.2526-1.2559)
  • GBP/USD +0.6% to 1.3145 (range 1.3053-1.3184)
  • USD/CHF -0.1% to 0.9786 (range 0.9774-0.9810)
  • 1-mo. USD/TWD NDF little changed at 30.365
  • Bloomberg Dollar Spot Index -0.1% to 1169.61
  • JPM Emerging Mkt FX Index -0.4% to 68.90
  • JPM FX Volatility Index +1.3% to 7.94
  • U.S. stocks lower
  • S&P 500 -0.3% to 2542.66
  • DJIA -0.1% to 22745
  • Commodities:
    • WTI Crude +0.5% to $49.52/bbl
    • Gold +0.7% to $1,285/oz (range $1,275-$1,286)
    • Copper little changed at $6,666/mt

TECHNICAL OUTLOOK

  • USD/JPY — Consolidating near 112.83 conversion line
  • Resistance: 112.83 conversion line; 113.53/58 July 13/14 highs
  • Support: 112.22/26 Sept. 29/28 lows, 112.00 psychological
  • EUR/USD — Consolidating, downward momentum stalling
  • Resistance: 1.1795 Sept. 27 high; 1.1833 Sept. 29 high
  • Support: 1.1670 major wave; 1.1650 July 27 low
  • EUR/JPY — Consolidating near 132.00
  • Resistance: 132.48 Ichimoku conversion line; 132.77 Oct. 5 high
  • Support: 131.89 Ichimoku base line; 131.26 Sept. 13 low
  • AUD/USD — Breached 1st upper band, trending toward 12-mo. moving avg.
  • Resistance: 0.7811 1st upper band; 0.7830 Oct. 4 low
  • Support: 0.7740 July 13 high; 0.7727 July 14 low
  • NZD/USD — Lower, extending below 0.7156 200-DMA
  • Resistance: 0.7112 Oct. 5 low; 0.7168 Oct. 2 low
  • Support: 0.7035 May 30 low; 0.7007 May 26 low
  • USD/KRW 1M Fwd — Higher above 200- DMA
  • Resistance: 1147.95 Oct. 2 high; 1151.32 July 12 high
  • Support: 1136.65 Sept. 27 low; 1132.32 Sept. 26 low
  • USD/THB — Higher, below 100-DMA
  • Resistance: 33.545 Oct. 3 high; 33.575 100- DMA
  • Support: 33.194 Sept. 27 low; 33.088 Sept. 26 low
  • USD/SGD — Higher toward 100-DMA
  • Resistance: 1.3678 100-DMA; 1.3691 Oct. 6 high
  • Support: 1.3607 Oct. 5 low; 1.3543 Sept. 27 low
  • USD/TWD — Consolidating above 50/100-DMAs
  • Resistance: 30.501 July 12 high; 30.525 July 11 low
  • Support: 30.330 Oct. 2 low; 30.225 Sept. 27 low
  • USD/MYR — Consolidating within short term uptrend
  • Resistance: 4.2440 Oct. 3 high; 4.2695 Sept. 5 high
  • Support: 4.1825 Sept. 8 low; 4.1775 Nov. 9 low
  • USD/PHP — Higher above 50- DMA
  • Resistance: 51.292 Oct. 3 high; 51.305 Aug. 23 high
  • Support: 50.870 Oct. 2 low; 50.580 100-DMA
  • USD/INR — Retesting 200-DMA
  • Resistance: 65.7850 March 15 high; 66.2450 March 14 high
  • Support: 65.150 Sept. 26 low; 64.7275 Sept. 25 low
  • USD/IDR — Consolidating above multiple DMAs
  • Resistance: 13593 Oct. 3 high; 13609 Dec. 1 high
  • Support: 13344 50-DMA; 13227 Sept. 15 low

–With assistance from Robert Fullem and Edward Bolingbroke. To contact the reporter on this story: Lananh Nguyen in New York at lnguyen35@bloomberg.net

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