US President Trump no longer pushing the US economy to reopen by Easter

I noted this already but its worth a separate post.

At this briefing to the press:
Says he is extending the government on dealing with virus outbreak to April 30
These are the social distancing and related guiltiness.
What this means is that Easter is no longer Trump’s target for reopening the US economy:
  • “that was aspirational’.
  • “We will be extending our guidelines to April 30 to slow the spread. On Tuesday, we will be finalizing these plans and providing a summary of our findings.”
  • “We can expect that by June 1 we will be well on our way to recovery.”
Says Easter expected to be the peak period of infection.

Bond market worries: What implied volatility says about the week ahead

The volatility playbook for the week ahead

After a week where markets have had to try and understand the potential fallout on the Chinese economy from the coronavirus outbreak, a more dovish BoC, a reasonable Aussie jobs report, and solid UK data, we head into the new week with a number of moving parts through which to navigate.
One aspect that I have addressed in the ‘Week Ahead’ playbook is the message I am seeing from the US bond market and it is a play that is progressively suggesting more risk averse positioning. It gives me some belief that implied volatility in markets could start to respond and move higher. I have mentioned in reports of past that the bond market has never fully bought into the reflation trade that so many economists had got quite excited about going into 2020. Where, if I look at the long end of the US Treasury or German bund curve, or even the copper/gold ratio, the market is saying reflation is a pipe dream, and instead, we may actually be too optimistic about the global growth story.

(Green – US 10-year inflation expectations, white – copper/.gold ratio)

US 10-year inflation expectations, white
We know the FOMC meeting is this coming week and while no one expects a change in the fed funds rate, we are expecting Jay Powell to be intensely probed about the Fed’s balance sheet and measures to support the repo market. Risk markets, such as equities, have been supported by changes to excess reserves, which despite calls to the contrary from the Fed, the market has taken these changes as QE, and this may well be coming to an end – or, should I say, the expansion of reserve growth will soon abate.

(White – excess reserves, yellow – Fed’s balance sheet, purple – USD index)

White - excess reserves, yellow

(more…)

USD/JPY: Intra-day range In 2019 narrowest since 1976; Where next? – MUFG

Can the low volatility continue?

MUFG Research discusses USD/JPY outlook and targets the pair at 107, 106, 105, 104 in Q1, Q2, Q3, and Q4 respectively.

The intra-day high-to-low trading range for USD/JPY in 2019 was 7.6% – that’s the narrowest trading range since 1976 according to Bloomberg data. Taking the last three years the trading range has been just 13.5% underlining the remarkable stability of USD/JPY. 3mth ATM implied volatility fell to 4.99% in December, a record low underlining the conditions conducive to carry. These conditions helped keep the yen weak but failed to trigger any notable sell-off of the yen,” MUFG notes.

“In our view that is a reflection of underlying positives for the yen that will contribute to yen strength this year, even if financial market conditions remain relatively benign…We see limited upside for USD/JPY from current levels. The factors above will act to limit yen weakness. We do not assume any major risk-off event this year but the assassination of Qassem Soleimani in Baghdad on 3rd January is a clear near-term upside risk for the yen that has emerged as 2020 commences,” MUFG adds.

Sources: China purchases 5 cargos of soybeans from the US

About 300,000 tonnes

Sources are saying that China has purchase 5 cargoes of soybeans from the US. That is about 300,000 tonnes.  That is above an earlier report of two cargoes or 120,000 tonnes.
There are also unconfirmed reports that China is preparing for the December 15 tariffs to be enacted.

South Korea’s vice fin min says watching markets for impact of North Korea issues

Sounding a warning for volatility related to NK missile tests and other geopolitical issues

This comes after North Korea’s state media KCNA reported on Sunday that the country had conducted a “very important” test at its Sohae rocket-testing ground. NK have previously agreed to close the facility. But, no, they have not.
US President Trump had words on the NK tests over the weekend:
  • “Kim Jong Un is too smart and has far too much to lose, everything actually, if he acts in a hostile way. He signed a strong Denuclearization Agreement with me in Singapore,” 
  • “He does not want to void his special relationship with the President of the United States or interfere with the U.S. Presidential Election in November” 

Rare-earth metals fall to 7-month lows as China resumes Myanmar supply

The prices of rare-earth metals have tumbled from their June highs after China, a key refiner, resumed the import of ores from Myanmar in September but supply concerns continue to plague the market.

In mid-November, neodymium, an ingredient of permanent magnets used in electric vehicle motors, was traded at around $54 per kilogram, while dysprosium, which is added to improve permanent magnets’ heat resistance, was traded at around $230 per kilogram. Both values were 20% lower than their recent highs in June, and at their lowest points since April.

China’s Yunnan Province, which borders Myanmar, suspended imports of all resources, including rare-earth ores, from its neighbor in November 2018. It was thought that this move was a crackdown on the smuggling of rare-earth metals into China from mines in neighboring Kachin State and other places in Myanmar, where many Chinese were working.

Rare-earth ores mined in Myanmar contain high concentrations of dysprosium, which is mined in only limited areas in China. Myanmar had become an attractive source for Chinese refiners as its rare metals are traded at relatively low prices due to cheap labor and loose environmental protection.

The suspension of imports from Myanmar has pushed up dysprosium prices since the start of the year, paving the way for soaring rare-earth metal prices in May and June over speculation that China could announce a ban on imports. Rare-earth metal prices are particularly susceptible to movements in China’s market, given its small size and the country’s dominance.

But the suspension was abruptly lifted in late September and even now, traders have few clues as to the reasons behind China’s move. “I have no idea what is going on,” said Yutaka Kawasaki, general manager of Samwood, a Japanese trading house that deals in rare earth. (more…)

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