-->! FX Strategy
AMERICAS MARKET OPEN
Good morning. The Bank of England took markets by surprise once
again, unexpectedly raising rates to 5.25% when no rate change was
expected. The market had largely priced a rate hike for February, so this is
more of a matter of timing. Nevertheless, it is unambiguously positive for
sterling. And, it reinforces the notion that, despite the currently rich level of the
currency, the BoE does not seem to mind policies likely to reinforce that trend.
Today's other news from the UK was also strong, with industrial production
rising 0.5% in November, versus the 0.3% gain expected. And, October's result
got an upward revision as well.
The Australian dollar is much stronger this morning as another month of
red-hot employment gains has the markets more seriously contemplating
an RBA rate hike. December jobs data posted a 44,600 gain when only a
15,000 gain was expected, and the unemployment rate was steady at 4.6%
rather than rising to 4.7% as the consensus had expected. And, November's
jobs report was revised up to 43,000 from the initially-reported 36,200. The
participation rate edged up to 64.9%, just shy of its all-time high of 65.0%
recorded in September. Aussie-dollar popped from around 0.7770 to 0.7820,
and as we write has drifted a tad higher. Market expectations of an RBA rate
hike in February rose to 41% from 31% yesterday. We remain tactically positive
on the Australian dollar, particularly within the commodity bloc, precisely
11 January 2007
Fixed Income Research
http://www.credit-suisse.com/researchandanalytics
Contributors
Olivier Desbarres
+44 20 7888 5619
olivier.desbarres@credit-suisse.com
Joe Prendergast
+44 20 7888 4441
joe.prendergast@credit-suisse.com
Lara Rhame
+1 212 325 5840
lara.rhame@credit-suisse.com
Louisa Rigoni
+44 20 7888 9827
louisa.rigoni@credit-suisse.com
Shuen Hooi Yeoh
+65 6212 3418
shuenhooi.yeoh@credit-suisse.com
USD EUR 2Y Govt Bond 10Y Govt Bond
Spot Indicative Hi-Lo % Spot Indicative Hi-Lo % Yld % chg Yld % chg
USD -- -- -- -- -- -- -- -- 4.808 0.00 4.684 0.00
EUR* 1.298 1.298 1.293 0.29 -- -- -- -- 3.952 -0.01 4.021 0.00
JPY 120.3 120.4 119.5 0.55 156.1 156.1 154.6 0.84 0.844 -0.02 1.760 -0.02
GBP* 1.939 1.941 1.932 0.38 0.669 0.670 0.668 -0.10 5.276 0.00 4.810 0.00
CHF 1.245 1.248 1.244 -0.09 1.616 1.617 1.612 0.20 2.529 -0.01 2.673 -0.01
AUD* 0.782 0.783 0.777 0.65 1.659 1.665 1.655 -0.36 6.223 0.03 5.862 0.02
CAD 1.171 1.176 1.169 -0.31 1.519 1.524 1.517 -0.02 4.009 0.01 4.054 0.02
NZD* 0.690 0.691 0.687 0.45 1.881 1.885 1.878 -0.14 6.586 -0.03 5.880 0.01
SEK 7.022 7.068 7.018 -0.63 9.111 9.149 9.105 -0.34 3.737 0.00 3.858 0.00
NOK 6.422 6.454 6.416 -0.39 8.332 8.356 8.323 -0.11 4.354 0.00 4.356 0.01
CZK 21.37 21.42 21.33 -0.18 27.72 27.77 27.65 0.09 3.075 0.03 3.784 0.00
PLN 2.985 2.997 2.985 -0.33 3.874 3.882 3.872 -0.02 4.534 -0.03 5.230 -0.01
ZAR 7.276 7.402 7.253 -0.25 9.440 9.484 9.419 0.16 8.837 -0.04 7.67 -0.01
KRW 939 940 938 0.12 -- -- -- -- 4.938 0.03 4.973 0.01
SGD 1.541 1.542 1.536 0.35 -- -- -- -- 2.920 0.02 2.990 0.02
THB 36.06 36.10 35.95 0.18 -- -- -- -- 4.891 -0.03 5.072 0.01
What has changed?
Currency appreciation (%) vs.
USD(from NY close)(+ = USD
weakness)
-1 -0.5 0 0.5 1
JPY
CHF
ZAR
CAD
EUR
GBP
NOK
NZD
SEK
AUD
TWD 32.77 32.81 32.69 0.06 -- -- -- -- 1.780 0.00 1.988 0.00
Source: Credit Suisse, Bloomberg Professional Services
Note: * Indicates inverse exchange rate quotation. Spot as of 10:00 GMT / 06:00 EST. Changes are from NY close. The table shows Norway 3Y, which is the benchmark government bond.
11 January 2007
FX Daily 2
because of the favorable combination of relatively high nominal yields (versus Canada)
and relatively low expectations priced in for a rate hike (versus the kiwi, where a quarter
point hike is mostly priced in already). And, unlike kiwi, Aussie has so far been less
sensitive to global risk aversion jitters.
And of course the ECB meets today, as well, and while it is also expected to keep
rates unchanged at 3.50%, the press conference is sure to garner much attention. Last
June, the ECB shifted from raising rates every third meeting to every other meeting. At
the December press conference, when the ECB last raised rates, many analysts had
interpreted Trichet's comments as implying a shift back to the once every third meeting
pace. A signal that the ECB was going to raise rates in February, instead of March, would
likely be a euro positive, particularly versus the Swiss franc, and would clearly indicate the
ECB is uncomfortable lightening the pressure on the brake pedal.
The majors were largely stronger versus the dollar, with the yen the big exception.
Dollar-yen rallied throughout Asian trading time, and in the early London session broke
higher through the 120 figure. As we write, dollar-yen is trading at intra-day highs around the
120.40 level not seen since December of 2005. While we think the BoJ will be sufficiently
gradual in raising rates to keep the yen as a funding currency for some time, we would be
cautious about adding to short yen positions at these levels. The BoJ meets next week, and
while Credit Suisse economists do not expect a rate hike in Q1, the BoJ may take advantage
of a weak yen to inject some strategic ambiguity into the market and discuss the need to
renormalize rates. We continue to see the yen underperforming the majors, and a further
recovery in euro-yen is likely, particularly if the ECB sounds hawkish this morning while the
BoJ remains cautious. And, today's economic news hardly supports an outright hawkish
outcome from next week's BoJ meeting: Japanese machine tool orders fell 2.4% y.o.y in
December and a central bank survey showed inflationary expectations among Japanese
consumers fell for the first time in almost a year. Nevertheless, we see dollar-yen as
vulnerable at current levels to an indication of BoJ rate hike intentions.
This morning has overall been a stronger session for EMEA currencies, although it is
difficult to tease out a unifying theme. The high-yielding Turkish lira outperformed the lowyielding
Czech crown, with lira-Czech hitting a 10-week high of 14.91. At the same time,
we are still bearish euro-Slovak versus spot and the forwards. Our 3m and 12m euro-
Slovak forecasts stand at 34.00 and 33.50 respectively, versus forwards of 34.54 and
34.56. The euro-Slovak cross seems immune to any EM weakness despite an NBS-ECB
policy-rate spread of only 125bp (and likely to narrow). Euro-Slovak hardly flinched
following very poor November trade data and disappointing November industrial output
numbers out this morning. The main risk to our bullish view is waning government and
central bank appetite for euro-adoption, in which case the need for tight policies/strong
koruna would become a brittle one.
Euro-zloty has been well behaved in the wake of the expected parliamentary
approval of Skrzypek as central bank governor. His first key statement will likely be at
the 31 January MPC meeting, but we do not expect anything particularly controversial
given the seemingly overwhelming consensus to leave rates on hold in January. Dollarrand
appears to have settled near 7.30, but the recent rand weakness has highlighted its
vulnerability to shifts in EM sentiment and corrections in equity markets. Manufacturing
output growth slowed to 5.4% yoy in November from a revised 7.7% yoy in October, in line
with PMI data. While there are signs that the cumulative rate hikes have clipped economic
growth, strong domestic demand has created good momentum. We think the probability
of the Turkish current account deficit in November coming in below the market consensus
of $3bn is quite low. A $3bn print would push the 12-month rolling deficit to 9.1% of GDP
from 9.0% in October, and while the long lira trade is still our favoured CE4/TRY/ZAR
trade, the stubbornly high current account deficit is one of the lira's main vulnerabilities.
11 January 2007
FX Daily 3
LATEST DATA AND EVENTS
• The Bank of England took markets by surprise once again, unexpectedly raising
rates to 5.25% when no rate change was expected.
• German economic growth accelerated to 2.5% in 2006, a strong pick-up from the
previous year’s rate of 0.9%.
• UK industrial production rose 0.5% in November from October, the strongest
monthly rate since March 2006 and above the 0.3% consensus estimate.
• Japan's leading index fell to a preliminary 20.0 in November from a revised 54.5
in October and the coincident index fell to a preliminary 50.0 in November from a
revised 75.0 in October.
• Australia’s employers created 44,600 new jobs in December, well above market
expectations for a 15,000 gain.
EUROPE, MIDDLE EAST, AFRICA
European Union statistics office Eurostat confirmed that GDP in the euro area rose
0.5%qoq and 2.7%yoy in the third quarter, the same as reported at the end of
November, Reuters reported.
German economic growth quickened to 2.5% last year, the strongest pace in six years,
driven by solid domestic and foreign demand, Federal Statistics Office data showed,
confirming the figure obtained by Reuters from a source familiar with the data on
Wednesday.
France’s Budget Minister Jean-Francois Cope said France's gross domestic product
growth rate for 2006 would be “between 2% and 2.5%,” Reuters reported.
The Bank of England unexpectedly raised its benchmark interest rate by a quarterpoint
to a five-year high of 5.25%, against expectations for the rate to stay at 5.0%,
Bloomberg reported.
The Office for National Statistics said factory output rose 0.3%mom in November, in
line with forecasts and leaving it 2.4% higher than a year ago, Reuters reported.
Overall industrial output, which includes the energy sector, rose 0.5%mom in November
and 0.8% on an annual basis. That was the strongest monthly rate since March 2006 and
above the 0.3% increase expected by the market.
Sweden’s annual headline inflation rate fell to 1.6% in December from 1.7% in
November, Statistics Sweden reported. And the underlying inflation rate according to
UND1X decreased to 1.2% (from 1.3% in November). Inflation was expected to be
unchanged, according to a Bloomberg survey.
Sweden’s AMS labour board said the December jobless rate was 4.4%, up from
November's 3.7%, but down from 5.5% a year ago, Reuters reported.
Czech construction output rose 7.9%yoy in November compared with 7.1% in October,
Reuters reported citing data from the Statistical Bureau.
Highlights
Euro Area
UK
Sweden
Czech Republic
11 January 2007
FX Daily 4
Russia's GDP grew 6.8% in January to November last year, accelerating from an
annual 6.2% in the first 11 months of 2005, the Economy Ministry said in its economic
review, Bloomberg reported. GDP grew an annual 7.8% in the month of November,
compared with an annual 8.4% in October, the report showed.
Slovakia's foreign trade balance showed a deficit of 9.25 billion crowns in November,
compared with a revised gap of 5.48 billion crowns in October, Reuters reported citing
data from the Statistics Office.
Slovak industrial output rose by a real 9.8%yoy in November, down from 11.1%
growth in October, the Slovak Statistics Office reported, according to Reuters.
Slovak construction output rose by a real 11.7%yoy in November after 9.1% growth in
October, Reuters reported citing data from the Statistics Office.
South Africa’s Business Confidence Index rose to 103.5 in December from the
previous record of 103.2 in November, Bloomberg reported.
ASIA-PACIFIC
Japan's leading index fell to a preliminary 20.0 in November from a revised 54.5 in
October, Reuters reported citing government data. The coincident index also fell to a
preliminary 50.0 in November from a revised 75.0 in October.
Japan's official reserves amounted to $895.320 billion at the end of December, down
from $896.949 billion a month earlier, Reuters reported citing data from the Ministry of
Finance.
Inflationary expectations among Japanese consumers fell for the first time in almost
a year last quarter, a central bank survey showed. 68% of consumers surveyed between
November 21 and December 11 said they expected prices will increase in a year, down
from 79% in the previous survey released in October, the Bank of Japan reported,
according to Bloomberg.
Japanese machine tool orders fell 2.4% in December from a year earlier to 125.6
billion yen, Bloomberg reported citing a preliminary report from the Japan Machine Tool
Builders' Association.
Foreign auto makers' sales of cars, trucks and buses in Japan fell 2.8% in December
from a year earlier, Dow Jones Newswires reported citing data from the Japan
Automobile Importers Association.
A further 44,600 jobs were added to Australia’s economy in December after
advancing a revised 43,000 in November, above market expectations for a rise of
15,000. The unemployment rate was unchanged at a 30-year low of 4.6%, against market
expectations for a rise to 4.7%, Bloomberg reported citing data from the Bureau of
Statistics.
The Melbourne Institute’s consumer inflationary expectations survey found 20.8%
of respondents in January expected inflation to fall within the RBA's 2%-3% target
band, an improvement from the 17.1% of respondents in December, Dow Jones
Newswires reported.
Russia
Slovakia
South Africa
Japan
Australia
11 January 2007
FX Daily 5
China posted a trade surplus of $21 billion in December, just below the $22.9 billion
registered in November and October's record $23.8 billion, official data from the
customs administration confirmed, Reuters reported. The surplus for the full year was a
record $177.5 billion, up from $102 billion in 2005. Annual export growth in December was
24.8%, with import growth of 13.5%. The figures were in line with a report on Wednesday
by the official Xinhua news agency.
China's vehicle sales rose 25.1% to a record 7.22 million units last year, according to
the China Association of Automobile Manufacturers, Dow Jones Newswires reported.
Net foreign portfolio investments in the Philippines rose 24% in 2006 from a year
earlier to reach $2.6 billion, from $2.1 billion the previous year, Reuters reported citing
data from the central bank.
South Korea's central bank held its key interest rate steady at 4.50%, as widely
expected, Reuters reported.
Annual growth in South Korea's credit-card payments rose 10.0% and sales at
department stores grew 2.0% in December from a year earlier, from annual gains of
13.5% and 4.4%, respectively, in November, the finance ministry’s monthly Green Book
report showed, Reuters reported.
South Korean import prices in won terms rose 0.6% in December from a year earlier,
Reuters reported citing central bank data. December export prices in won terms fell 1.6%
from a year earlier, slowing from a 2.6% drop in November, the Bank of Korea data
showed.
The University of the Thai Chamber of Commerce's consumer confidence index
dropped to 82.4 in December from 83.1 in November, Dow Jones Newswires reported.
The Vietnamese dong's depreciation against the dollar is expected to slow to 1%
this year while the country's credit growth forecast would be similar to 2006 at 20-21%,
state media said, according to Reuters. Robust economic growth and higher supplies of
foreign currencies were expected to help stabilise the dollar/dong rate, State Bank of
Vietnam Governor Le Duc Thuy was quoted by the Vietnam News Agency as saying.
DAY AHEAD
ECB Meeting: No change expected
We do not expect the ECB to change rates this month. However, the shift in language in
the ECB’s opening statement of the December press conference means this month’s
conference will need to be closely watched. If our interpretation of the December
statement was correct - that it signaled a shift back to a tightening cycle of one increase
every three months rather than every two, as was the case in the first half of 2006 - then
there is unlikely to be much innovation in the language this month.
As a result, we would not expect President Trichet to say either “strong vigilance” or that
there is a need to further withdraw monetary accommodation, but he is likely to restate
that policy remains accommodative. Clearly any such comments would make a February
hike likely, but we think the key press conference in setting the stage for a March hike will
be next month. (European Economics Team: European Data Watch: 4 January 2007)
China
The Philippines
South Korea
Thailand
Vietnam
11 January 2007
FX Daily 6
UPCOMING DATA AND EVENTS
Asia/Pacific
Vietnam to become the 150th member of the World Trade Organization (WTO)
Date
GMT
Country
Data
Period Actual
Bloomberg
consensus
Previous
10 Jan 23:30 Australia Consumer Inflation Exp Jan 20.8% N/A 17.1%
10 Jan 23:50 Japan Official Reserve Assets Dec $895.3B N/A $896.9B
11 Jan 0:30 Australia Emp Change/Unemp Rt Dec 44.6K/4.6% 15K/4.7% 43.0K/4.6%
11 Jan 0:30 Australia Participation Rate Dec 64.9% 64.8% 64.8%
11 Jan 1:00 S Korea Overnight Call Rate Jan 4.5% 4.5% 4.5%
11 Jan 3:00 S Korea Export Price Index Dec mm/yy -0.7%/-1.6% N/A -2.1%/-2.6%
11 Jan 3:00 S Korea Import Price Index Dec mm/yy 0.2%/0.6% N/A -1.5%/-0.3%
11 Jan 3:30 Thailand Consumer Confidence Dec 76.5 N/A 77.2
11 Jan 5:00 Japan Coincident/Leading Index Nov P 50%/20% 50%/20% 75%/54.5%
11 Jan 6:00 Japan Machine Tool Orders Dec P y/y -2.4% N/A 4.9%
Europe, Middle East and Africa
ECB Governing Council meeting, followed by interest rate announcement at 1245 GMT. News conf follows at 1330 GMT
Date
GMT
Country
Data
Period Actual
Bloomberg
consensus
Previous
11 Jan 8:00 Czech Construction Output Nov y/y 7.9% N/A 7.1%
11 Jan 8:00 Slovakia Industrial Prod Workday Nov 9.8% 11.6% 11.1%
11 Jan 8:00 Slovakia Construction Constant Nov y/y 11.7% 10.3% 9.1%
11 Jan 8:00 Slovakia Trade Balance Nov -9.3B -2.7B -5.5B
11 Jan 8:15 Germany GDP (Annual Growth Rt) 31 Dec 2.5% N/A 0.9%
11 Jan 8:30 Sweden CPI Headline Rate Dec mm/yy 0.0%/1.6% 0.1%/1.7% 0.1%/1.7%
11 Jan 8:30 Sweden CPI Underlying Inflation Dec mm/yy 0.0%/1.2% 0.1%/1.3% 0.0%/1.3%
11 Jan 9:00 Sweden AMS Unemployment Rt Dec 4.4% 4.2% 3.7%
11 Jan 9:30 S Africa SACOB Business Conf Dec 103.5 N/A 103.2
11 Jan 9:30 UK Industrial Production Nov mm/yy 0.5%/0.8% 0.3%/0.4% -0.6%/0.8%
11 Jan 9:30 UK Manufacturing Prod Nov mm/yy 0.3%/2.4% 0.3%/2.3% -0.3%/2.6%
11 Jan 10:00 Euro Area GDP Q3 F qq/yy 0.5%/2.7% 0.5%/2.7% 0.5%/2.7%
11 Jan 12:00 UK BoE Announces Rates 11 Jan 5.25% 5.0% 5.0%
11 Jan 12:45 Euro Area ECB Announces Intrst Rt Jan N/A 3.5% 3.5%
11 Jan 15:30 UK Leading/Coincident Indx Nov N/A N/A -0.1%/0.1%
11 Jan N/A Israel Trade Deficit Dec N/A N/A 464.8
11 Jan N/A Russia Official Reserve Asset Dec N/A 300.0M 289.0M
Americas
Federal Reserve Bank of NY President Geithner speaks on “Developments in the Global Economy and Implications for the United
States” before a Council on Foreign Relations roundtable. (1300 GMT)
Federal Reserve Bd Gov Susan Bies speaks before National Credit Union Administration Risk Mitigation Summit.
Former US Treasury undersecretary for International Affairs to speak at the Money Marketeers of NY University - ‘Global Financial
Warriors: A Untold Story of Crisis, Contagion, and Reform’.
Date
GMT
Country
Data
Period
Credit
Suisse
Bloomberg
consensus
Previous
11 Jan 10:00 Brazil FGV Pre. Inflation IGP-M 10 Jan m/m 0.32% 0.2% 0.18%
11 Jan 13:30 US Initial Jobless Claims 6 Jan 340K 320K 329K
11 Jan 20:30 Mexico Global Econ Indic IGAE Oct 3.8% 4.6% 4.3%
11 Jan 21:00 Chile Nom Overnight Rt Target 11 Jan 5.25% 5.25% 5.25%
Sources: Bloomberg Professional Services, Reuters, Credit Suisse estimates
..
FIXED INCOME RESEARCH > INTERNATIONAL
Bunt Ghosh, Managing Director Joe Prendergast, Managing Director Neal Soss, Managing Director
Global Head of Fixed Income Research
+44 20 7888 3042
bunt.ghosh@credit-suisse.com
Head of Global FX Research & Strategy
+44 20 7888 4441
joe.prendergast@credit-suisse.com
Chief Economist
+1 212 325 3335
neal.soss@credit-suisse.com
LONDON One Cabot Square, London E14 4QJ, United Kingdom
FX STRATEGY GLOBAL ECONOMICS TECHNICAL ANALYSIS
Olivier Desbarres, Director Maxine Koster, Vice President Francoise Skelley, Managing Director
+44 20 7888 5619
olivier.desbarres@credit-suisse.com
+44 20 7883 6311
maxine.koster@credit-suisse.com
Global Head of Technical Analysis
+44 20 7888 7171
francoise.skelley@credit-suisse.com
Umberto Alvisi, Vice President David Sneddon, Director
+44 20 7883 6309
umberto.alvisi@credit-suisse.com
+44 20 7888 7173
david.sneddon@credit-suisse.com
Louisa Rigoni, Analyst
+44 20 7888 9827
louisa.rigoni@credit-suisse.com
NEW YORK Eleven Madison Avenue, New York, NY 10010, USA
FX STRATEGY GLOBAL ECONOMICS QUANT TRADING RESEARCH
Jason Bonanca, Director Kathleen Stephansen, Director Chiente Hsu, Managing Director
Head of Macro FX and Portfolio Strategy
+1 212 325 7185
jason.bonanca@credit-suisse.com
Director of Global Economics Research
+1 212 538 3260
kathleen.stephansen@credit-suisse.com
Head of Quant Trading Research
+1 212 538 6205
chiente.hsu@credit-suisse.com
Lara Rhame, Vice President Derek Chen, Director
+1 212 325 5840
lara.rhame@credit-suisse.com TECHNICAL ANALYSIS
+1 212 325 2744
derek.chen@credit-suisse.com
John Tirone, Director Fer Koch, Vice President
+1 212 325 4913
john.tirone@credit-suisse.com
1 212 325 2314
fer.koch@credit-suisse.com
YongChu Song, Vice President
+1 212 538 7013
yongchu.song@credit-suisse.com
Yu Zheng, Associate
+1 212 538 0761
yu.zheng@credit-suisse.com
SINGAPORE One Raffles Link, Singapore 039393
FX STRATEGY
Ray Farris, Director
+65 6212 3367
ray.farris@credit-suisse.com
Shuen Hooi Yeoh, Associate
65 6212 3418
shuenhooi.yeoh@credit-suisse.com
..
Disclosure Appendix
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Emerging Markets Bond Recommendation Definitions
Buy: Indicates a recommended buy on our expectation that the issue will deliver a return higher than the risk-free rate.
Sell: Indicates a recommended sell on our expectation that the issue will deliver a return lower than the risk-free rate.
Corporate Bond Fundamental Recommendation Definitions
Buy: Indicates a recommended buy on our expectation that the issue will be a top performer in its sector.
Outperform: Indicates an above-average total return performer within its sector. Bonds in this category have stable or improving credit profiles and are
undervalued, or they may be weaker credits that, we believe, are cheap relative to the sector and are expected to outperform on a total-return basis. These
bonds may possess price risk in a volatile environment.
Market Perform: Indicates a bond that is expected to return average performance in its sector.
Underperform: Indicates a below-average total-return performer within its sector. Bonds in this category have weak or worsening credit trends, or they may
be stable credits that, we believe, are overvalued or rich relative to the sector.
Sell: Indicates a recommended sell on the expectation that the issue will be among the poor performers in its sector.
Restricted: In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an
investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.
Corporate Bond Risk Category Definitions
In addition to the recommendation, each issue may have a risk category indicating that it is an appropriate holding for an"average" high yield investor,
designated as Market, or that it has a higher or lower risk profile, designated as Speculative and Conservative, respectively.
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being the strongest sub-category rating: High AAA, Mid AAA, Low AAA - obligor's capacity to meet its financial commitments is extremely strong; High
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economic/operating/financial circumstances are more likely to lead to a weakened capacity to meet its obligations; High BB, Mid BB, Low BB - obligations
have speculative characteristics and are subject to substantial credit risk; High B, Mid B, Low B - obligor's capacity to meet financial commitments is very
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