16 hours ago | September 16th, 2014 20:31:09 GMT

The big China news overnight was the big liquidity add / stimulus


Yes, you read that right – China stimulus.

Ryan had the headline here:  PBOC pumping 500bn yuan through SLF to top 5 banks

Adam with more, here: US dollar slumps after China primes the pump


The impact, well you can see that in the charts on your screen …. a big jump in currencies against the USD, especially the AUD, NZD, CAD, GBP … et al. Oil, stocks, too. (Speculation as to more dovishness from the Federal Reserve didn’t harm either).

Via Sina.com reports:

  • China is providing 500 billion yuan ($81.4 billion) of liquidity to the country’s five biggest banks
  • The People’s Bank of China yesterday started providing the banks with 100 billion yuan each through standing lending-facilities with tenor of three months
  • PBOC will complete the process today
  • “This is like ‘printing money’ as base money is created,” Shen Jian-guang, Hong Kong-based chief Asia economist at Mizuho Securities Asia Ltd., said in an e-mail. “The immediate impact is similar to an RRR cut of 50 basis points to all banks.” RRR is banks’ required reserve ratio; cutting it increases the amount they have available to lend.

AUD impact, for example:

audusd 17 September 2014 China 500bn yuan stimulus PBOC


17 hours ago | September 16th, 2014 19:57:26 GMT

Opposing headlines on ICM referendum poll send the pound for a ride


The first headlines showed ICM poll indicating the pro-independence side taking the lead in Scottish referendum and the pound dropped. A poll from ICM shows the Yes side ahead 52-48%.

The initial headline was wrong and the No side is actually at 52%.

The full results show 41% for Yes and 45% no with the remainder undecided.

What a slap in the face.


17 hours ago | September 16th, 2014 19:48:08 GMT

FOMC preview in two words: “significant” and “considerable”


The main reaction following the FOMC meeting tomorrow will depend on the words “significant” and “considerable”.

Those are the two key words that relate to the jobs market and guidance on how long rates will stay low.

Yellen starting pistol

Will Yellen finally fire the starting pistol for rate hikes?

The July 31 FOMC statement said:

“A range of labor market indicators suggests that there remains significant underutilization of labor resources.”

An easy way for the Fed to take a slightly more hawkish stance would be to remove the word ‘significant’ as an ode to improvements in some labor market metrics. There was a higher likelihood of such a move until the soft data in the most-recent non-farm payrolls report. The unemployment rate is also the same as it was in June.

Unemployment rate the same as June

Unemployment rate the same as June

What’s priced in:

I’d estimate there’s a 20% chance of a change that’s priced into the market.

The second key area to watch is the guidance about when rates will start to go up:

The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends.

Changing this statement in any way would be construed as hawkish and the likelihood of a hike by June/July would rise significantly. One thing to watch would be simply removing the part “after the asset purchase program ends” as Goldman Sachs warns. That’s because the ‘considerable period’ (probably six months) would start now and point to the potential for a March hike. Either way, the US dollar would rally.

What’s priced in:

There’s been a lot of talk about a change in this line. Hilsenrath threw a bit of cold water on it today and that weighed on the US dollar. A CNBC poll shows 43% of people thinking the phrase will be removed but I’d say the market is looking at a roughly 25% chance that it’s removed/altered.

Bottom line

Buy the rumor, sell the fact. Fed statements are always over-hyped and the Yellen/Bernanke Fed moves at a glacial pace. The bulk of the Fed will once again look around the room and say “what’s the rush?” despite clear signs of economic improvement.


18 hours ago | September 16th, 2014 19:21:04 GMT

Rumor that the latest Survation Scottish referendum poll has leaked


Word on twitter is that the No side polled at 52% compared to 53.5% in Survation’s previous poll.

I’m skeptical of the source but Bloomberg and some others picked up the chatter so it’s out there.  The pound isn’t reacting even though it shows a smaller lead for the pro-UK side.

The Survation poll is scheduled for release at 2130 GMT but an ICM poll is due first at the top of the hour. The full UK polling schedule is here but leaks and rumors are common.


18 hours ago | September 16th, 2014 19:16:27 GMT

Technical Analysis: AUDUSD bounces on PBOC liquidity infusion


The AUDUSD has bounced higher on back of a liquidity infusion into banks by the Peoples Bank of China. The move higher saw the price move above topside channel trend line resistance, and the 100 hour moving average (currently at 0.9069). This moving average is now risk for those who are long (or are thinking about getting long). In the video, I outline the technical picture for the pair, defining the risk and next targets.


18 hours ago | September 16th, 2014 18:45:56 GMT

Goldman Sachs FOMC preview: “Considerable time” will stay


In its preview for the FOMC meeting on Wednesday at 2 pm ET, Goldman Sachs says the Fed won’t remove or substantially modify its forward guidance that the funds rate will stay at its current level for a “considerable time” after the asset purchase program ends.

On its own, a removal of “considerable time” would be a big hawkish shift which, according to Goldman Sachs, might be warranted if the news about the recovery had changed substantially, but that is not the case.

“Indicators of output growth such as real GDP and the ISM have improved, but labor market improvement has slowed, inflation has come back down, and financial conditions have tightened a bit. Consistent with this, we see few signs that the center of the committee has moved its liftoff date forward from mid-2015,” Goldman writes in a note to clients.

Instead of this shift, Goldman Sachs believes there is a better plan that should be acceptable to many proponents of more data-dependent guidance.

“Under this plan, the committee would keep the existing guidance in place this week. It would drop the phrase “after the asset purchase program ends” but keep the “considerable time” language in October, provided the recovery continues to match expectations. And it would then decide in December whether to extend the guidance further, move to weaker wording such as “patient,” or go a more data-dependent route,” Goldman Sachs economists said.

What Goldman’s economists say and what the traders are doing are two different things.

Goldman Sachs

If you can’t trust Goldman Sachs, who can you trust?

For live tracking of Goldman Sachs FX trade recommendations, sign up for eFX Plus.


18 hours ago | September 16th, 2014 18:38:14 GMT

Why the Scottish referendum polls could be wrong


Polling is an inexact science.

Not only does ‘random’ sampling offer some challenges but models try to predict which type of voters will turn out. In a general election there is lots of historical data to draw upon but a referendum is a unique event.

One pollster is sounding alarm bells. Martin Boon, director of ICM, told BBC Radio 4:

‘This referendum has the potential to be a polling Waterloo, the biggest since 1992 when the polls got it wrong.

‘I think and hope that the best that we in the industry can hope for is that we dodge a bullet, but it’s entirely possible the bullets do start spraying our way.

‘We are dependent on a pot of people which is defined, but we don’t know how big it is and in my view it won’t be big enough.”

Factors that could skew the vote to the Yes (independence) side:

  • Strong Yes support may come from people who don’t normally vote, like young voters
  • Young men are less likely to answer phone surveys or speak to canvassers, so they might be underrepresented
  • Land-line phone polling my miss young people

Why the No vote might be underestimated:

  • People may feel pressure to say they’re voting for independence in polls
  • No voters may say they’re undecided rather than appear unpatriotic towards Scotland


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