FX Overnight Markets:

Australian labour market report sent AUD rallying, as a combination of larger than exp. surge in jobs growth and a steady participation rate produced an unexpected downtick in unemployment, to 5.1% from 5.2%. Jobs addition was drivenpurely by the part-time component,but the release was still well received. Market pricing of a rate cut at the next RBA meeting fell to ~24%from y'day's ~57%, with several desks revising their RBA calls. AUD/USD topped out just shy of its 200-DMA and despite trimming gains sits atop the G10 pile.

CAD under performance carried through into the Asia-Pac session,after y'day's "dovish hold" from the BoC. A softer WTI exacerbated CAD's wounds, but NOK was unfazed. Corona virus worry undermined regional equities, to the benefit of JPY.

The yuan softened during the last trading day before China's Lunar New Year holidays, with headlines re: corona virus providing the focal point. KRW moved in tandem. Only IDR defied gravity, printing fresh multi-year highs vs. USD.

FX Related Economic News:

Thursday starts with the announcement of the Norges Bank's rate decision at 0900 GMT, followed by the ECB's interest rate decision at 1245 GMT. Besides that, the release of the Eurozone's flash consumer confidence at 1500GMT and the Kansas City Fed's manufacturing index at 1600GMT are worth mentioning.

FX Relative Performance:

Forex relative performance chart


  • U.K. Prime Minister Boris Johnson's plan to formally leave the EU at the end of this month was approved by the U.K. Parliament. The bill will now go to Queen Elizabeth II who will sign it into law, putting the U.K. on track to leave the EU on January 31st, nearly four years after U.K. voters voted for Brexit.
  • Boeing's (BA) new CEO, David Calhoun, said on Wednesday that he wants the company to resume production of the 737 Max months before regulators sign off on the planes and airlines prepare to return them to service. “We got to get that line started up again,” Calhoun said on a conference call with reporters. “And the supply chain will be reinvigorated even before that.” The 737 Max crisis has raised concerns it could slow the broader economy given the breadth of Boeing's supply chain. Treasury Secretary Steve Mnuchin said earlier this month that the issues stemming from the plane’s grounding could shave half a percentage point off U.S. economic growth this year.
  • The International Energy Agency said it sees a surplus of 1 million barrels per day in the first half of 2020. IEA chief Fatih Birol, speaking to Reuters, said that the "abundance of energy supply in terms of oil and gas" is the reason that neither the killing of a top Iranian general nor the civil war in Libya boosted international oil prices. Oil prices fell by around half a percent today.
  • Apple (AAPL) is planning to launch a new low-cost iPhone (a follow up to the 2006 iPhone SE) as early as March, according to a Bloomberg report. It is expected to have a 4.7-inch screen, Touch ID, and the A13 Bionic chip. The company is expected to also unveil high-end 5G models in September.
  • Shares of Netflix (NFLX) fell close to 3% today following yesterday's earnings report that showed the streaming service added fewer U.S. subscribers than forecast. Netflix did top earnings and revenue for the period, but investors care about growth, and that is stalling in the U.S. market even though it is growing in international markets.
  • U.K chief financial minister Sajid Javid said he was moving forward with a digital services tax. France withdrew its proposal for a similar tax in the face of tariff threats from the U.S. Steve Mnuchin, U.S. Treasury Secretary, objected to the tax saying, "If people want to just arbitrarily put taxes on our digital companies we will consider arbitrarily putting taxes on car companies.”

Tail Risk for 2020:

While the election is 10 months away, fund managers consider the election to represent the biggest tail risk to performance. According to our definition, a tail risk is an event that has a small probability of occurring, but causes an asset to move more than three standard deviations from the mean. In other words, there is a small chance that the election could have a very big impact on the performance of their portfolios.

Tail Risk chart

Posted on

January 23, 2020


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