A. Laidi: Cina ed Egitto potrebbero spingere al rialzo il dollaro
Intraday Market Thought a cura di Ashraf Laidi, Chief Market Strategist di CMC Markets
• Dollaro Usa, questa settimana potrebbe mettere a segno un rimbalzo come bene-rifugio sulla scia del probabile rialzo dei tassi in Cina e della crisi egiziana
• Egitto, l’incertezza politica potrebbe diventare una realtà con la quale fare i conti fino alle elezioni di settembre 2011
• Pound egiziano già ai minimi degli ultimi sei anni, gli investitori stranieri (che detengono asset in valuta locale pari a 147 miliardi di Pound egiziani o 25 mld di dollari Usa) accelerano la dismissione di questi investimenti ad alto rendimento
DUBIOUS INFLATION AND EGYPT IMPACT
• Such contrasting inflation figures (relative to growing inflation in UK and Eurozone) are likely to weigh on the USD from a yield differential stance point
• The US dollar’s saving rebound this week could emerge from Chinese rate hike, Egyptian crisis, RBA decision
• Egyptian uncertainty will rein at least until September 2011, the Egyptian pound hit fresh 6-year lows at EGP 5.85, as a result of selling from foreign and Egyptian investors holding equity and treasuries
London – 31th January 2010
Chicago January PMI hit a 23-year high at 68.8, with sharp gains across the important components of new orders (75.7 from 68.7) and employment (64.1 from 58.4). The US dollar will require continued improvement in macro data beyond inflationary evidence.
Questions over the credibility of US inflation data should grow increasingly vocal. Just a few hours after the Eurozone released its estimate of Jan CPI at 2.4% (highest since Oct 2008), the US Commerce Department releases its December figures for core personal consumption expenditure index (Fed’s preferred inflation measure) at 0.7% y/y, the lowest on record. The headline PCE edged up to 1.2% from 1.1% despite double digit growth in each component of the CRB index. By these standards, the FOMC can afford to continue deeming disinflation as the greater risk, justifying QE2 until June. Such contrasting inflation figures (relative to growing inflation in UK and Eurozone) are likely to weigh on the USD from a yield differential stance point. Today, the US-GE 10-year spread drifts to 0.19%, the lowest since December 7th.
The US dollar’s saving rebound this week could emerge from the following:
i) Chinese interest rate hike in 1-year lending/ borrowing rates this week, coinciding with the Chinese Lunar Year on Feb 3rd. PBOC has usually announced tightening policy measures ahead during holidays/long weekends to avoid the market selloff from the decisions. Tuesday’s Jan PMI from China will be key. Dec PMI slipped to 53.9 from 55.2 in Nov.
ii) Prolonged safe-haven buying in US Treasuries stemming from renewed Egypt uncertainty and rising oil prices. In the event that the Egyptian Street rejects the new govt. line-up and opposition parties question the legitimacy of Mohammed El-Baradei, markets will see no other way but to continue bidding up oil prices (brent towards $110 from current $99.11 and WTIC towards $97-99 from current $89.37).
iii) A dovish policy statement from the Reserve Bank of Australia tomorrow is expected to push any further tightening after Q3. The rising cost of the floods has cut estimates of Q1 GDP to 0.4% from 0.8%. Australia’s Queensland state faces a second cyclone this week, after sustaining its worst floods on record. AUDUSD continue to struggle in regaining the parity barrier, while increasingly adrift near the 0.8980s. A dovish RBA statement should turn the Aussie into one of the clearest underperformers in the event of protracted risk aversion from equity indices and further tightening measures from China. Medium term preliminary target for AUDUSD remains at 0.9710.
Egypt Transition will be Long & Slow
The historical political shake-up in Egypt will take time to resolve itself. Aside from the obvious fact of the Street’s resentment with the current regime, uncertainty will rein at least until September 2011, when the presidential elections are due. Until then, expect intermittent clashes with authorities as long the Street sees no moves progress towards transparency in the upcoming electoral process. In spite of the escalating risks and repercussions emerging from Egypt’s political upheaval, there is an important comforting element of reality, which would reduce the threat of a full-blown regional crisis and emerging market contagion; The Egyptian Military, principal recipient of US aid and chief safeguard of national security, has clearly kept its hands off the current political transition. This improves its credibility in preserving civil, protecting resources, Suez Canal, banks and key businesses. The Military is aware of the importance of ensuring the smooth operation of the Suez Canal, which is not only a vital source of Egypt’s foreign currency receipts, but also ensures the supply/movement of crude oil. 10% of world trade flows through the Canal and 7% of its annual ship traffic carries crude oil.
The Egyptian pound hit fresh 6-year lows at EGP 5.85, as a result of selling from foreign and Egyptian investors holding equity and treasuries. Reports suggest business executives and former political officials have started transferring funds abroad. EGP is a freely convertible currency but remains subject to periodic intervention from the central bank via Suez Canal Bank and the Arab African International Bank. The last major intervention was in December 2009, aimed at capping the rate (preventing weakness) at EGP 5.70. The current uncertainty will likely erode another 5-7% in the EGP towards 6.25, this could prompt foreign investors into reducing their FX exposure in their high yielding bills/bonds investments. Foreigners own a total of about EGP $147 billion ($25 bln) in Egyptian treasury bills and bonds, with about a fifth of the country’s EGP 274 billion in outstanding treasury bills and about 40% of EGP 199.2 billion in outstanding treasury bonds.