In the aftermath of yesterday’s key market event, the FOMC’s $10 billion tapering and elimination of QE with “QualG“, not to mention the “dots” and the “6 month” comment, the USD has been on fire against all key pairs, with the EURUSD sliding below 1.38, a 150 pip move in one day which should at least give Mario Draghi some comfort, but more importantly sending the USDJPY soaring to 102.500 even as US equity futures continue to slide, and not to mention the Nikkei which tumbled -1.7% to just above 14,000 overnight. Perhaps the biggest take home message for traders from yesterday is that the Yen carry trade correlation to the Emini is now dead if only for the time being until DE Shaw and Virtu recalibrate their all-important correlation signal algos.
The other big news overnight was the plunge in the Yuan, tumbling 0.5%, 6.2286, up 343 pips and crushing countless speculators now that the “max vega” point has been passed. Expect under the radar news about insolvent trading desks over the next few days, as numerous mega levered FX traders, who had bet on continued CNY appreciation are quietly carted out the back door. Elsewhere, gold and other commodities continue to be hit on rising fear the plunging CNY will accelerate the unwind of Chinese Commodity Funding Deals.
With all the focus on the FOMC and China, it seems that the developments in Ukraine and Russia have taken a back seat in the last 24 hours. Nonetheless, there are a few interesting developments including a statement from Russia’s deputy prime minister Ryabkov that Russia could alter its position on Iranian nuclear talks in response to pressure from the EU and US over its annexation of Crimea (AFP). The Ukrainian interim PM maintained overnight that Crimea is Ukrainian territory though this comes after Ukraine’s National Security Council said it would withdraw military forces from Crimea in an attempt to deescalate the situation. Meanwhile, the Ukrainian finance ministry said that it would honour payments on a $3bn loan that it received from Russia in December. President Obama mentioned late yesterday that the US won’t take military action in the Ukraine.
Looking at the day ahead, the focus returns to US data including jobless claims, February existing home sales and the Philly Fed survey. The latter is expected to bounce back from -6.3 in February to +3.2 in March.
Bulletin news summary from Bloomberg and RanSquawk
- Heading into the North American open, and post FOMC, the USD index (+0.33%) trades on session highs, equities and fixed income trade near session lows and US and EU yield curves are near their steepest levels of the session.
- Later today the Federal Reserve will today release the results of bank stress tests which covers 30 bank holding companies with USD 50bln or more in assets.
- Treasury benchmark yields holding near yesterday’s highs; yields surged the most this year, led by 2Y-5Y sector, after Yellen said interest rates could rise by the middle of 2015.
- In her first press conference as Fed chair yesterday, Yellen emphasized that dropping a 6.5% unemployment threshold for considering an interest-rate increase “does not indicate any change in the committee’s policy intentionsâ€
- U.S. regulators worried that banks and brokerage firms remain too dependent on risky types of short-term funding are weighing new rules designed to reduce reliance on parts of what is often called the shadow banking system
- China’s yuan slid the most since 2008 in onshore trading after the central bank weakened the currency’s reference rate by 0.18%, matching a March 10 cut that was the biggest since July 2012; Chinese stocks fell, sending the Hang Seng into a bear market
- Investment banks should have known about forex traders using chat rooms that had the potential to rig currency prices, the head of the U.K.’s financial regulator said
- Ukraine said it plans to reinforce its eastern border with Russia and withdraw troops from Crimea, ceding control of the Black Sea peninsula as tensions remained high over Russian moves to annex the breakaway region
- Sovereign yields higher. EU peripheral spreads tighten. Asian equities slide, with Nikkei -1.6%, Shanghai -1.4%. European equity markets, U.S. stock-index futures fall. WTI crude and gold lower, copper falls 1.4%
