Article / 11 September 2015 at 9:38 GMT

From the Floor: Markets dig in for FOMC

Consulting editor / TradingFloor
Norway
  • All eyes turn to next week's FOMC, rate hike chance seen down to 26%
  • Asian equity markets mixed, European stocks dip
  • FX markets digesting Thursday's big intervention by PBoC
  • Gold bears are back, oil rangebound
  • Bonds becalmed

From the Floor Banner
 
By John Acher

Brace, brace!

Asian equity markets were mixed and European stock markets slipped on Friday, shrugging off overnight gains on Wall Street, while currency, fixed-income and commodities markets were sideways, bracing for the US Federal Reserve's interest rate meeting next week.

”Over the past 24 hours, we have seen volatilities in most (currency) pairs trading more or less sideways. Everybody seems to be waiting for next week’s FOMC meeting,” says Jeppe Norup at Saxo Bank's options trading desk.

Crude oil was stuck in a $43-47/barrel range, while gold bears have returned ahead of the Fed's September 16-17 meeting, which is seen as increasingly unlikely to raise interest rates amid worries that China's economic slowdown could spread to other parts of the world.

"The chance of a Fed hike is seen now at just 26%, down from 30% yesterday morning," Norup says.

Saxo Bank's commodities strategy chief, Ole Hansen, says that gold market traders were also hunkering down for the Fed meeting: ”The FOMC meeting next week is obviously scaring quite a few people, so (gold) positions are being unwound and shorts are being initiated ahead of that decision next week.”

Gold bears are back in the market, but copper had its best week in four months, Hansen adds.

Currency markets were still getting to grips on Friday with a surprising and stunningly large intervention in the offshore yuan market on Thursday by the People's Bank of China to support the Chinese currency.

"$150 billion was traded on EBS yesterday, compared with a normal day of $20 billion," says Saxo Bank's Tareck Horchani. "It really shows how serious PBoC is about keeping the currency stable at around 6.40.”


PBoC intervenes heavily to support CNH, offshore-to-onshore yuan spread slashed
PBOC intervention
 


 























Source: Saxo Bank

”The spread between offshore and onshore was around 1,130 pips and dropped all the way down to 80 pips yesterday and is now trading around 250," he says. ”It’s the first time I have seen the PBoC intervene in the offshore market -- usually they are quite active onshore. But I have never seen local banks selling USDCNH for the PboC."

Horchani says the PBoC was also intervening quite actively in the forward market. 

”The 12-month CNH forward points have been moving much lower, from 1,800 to 1,500 yesterday, and we were trading at a high of 3,000 pips in August," Horchani says.

”Dollar remains bid though with oil still trading below $50/b.”

The Bank of Korea kept its interest rate unchanged on Friday at 1.5% and expressed worries about the trend of recovery going forward, saying that instabilities in the Chinese forex and equities market is a risk for the global economic recovery.

Crude stuck in range

Crude oil was rangebound. "We are finding resistance up towards the $47-47.50/b area at the moment and support is still down around $43/b," Hansen says.  

”We had a bit of a move higher yesterday, but some selling coming into the close,” says Hansen. ”The weekly inventory report headlines were actually not that positive. We saw inventories rise, demand slow.”

Gold has been sliding along its trendline, and yesterday attempted the $1,100/oz support level. 

"We did find some support and manage to squeeze out some shorts on the way back up, but didn’t quite make it back above $1,118/oz, which I see as a bit of a line in the sand at the moment," Hansen says. ”Right now we are testing today’s pivot of $1,110/oz. If we make it below that, I think we will probably have another go at $1,100/oz.” 

Gold could test $1,100/oz support again
Gold
 




















Source: Saxo Bank

European bourses, which had been indicated higher, slipped in morning trading.

Shares in European telecom groups could be dented by news that European regulators had blocked a planned merger by Swedish-Finnish TeliaSonea and Norway's Telenor of their Danish operations, says Saxo Bank's Adam Seagrave in London.


China markets
The People's Bank of China's massive intervention to support
the yuan 
has surprised currency markets. Photo: iStock 

John Acher is an editor at TradingFloor.com

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Editor’s note: From the Floor takes advantage of TradingFloor.com's unique real-time access to Saxo Bank’s various trading desks around the globe to put our community in touch with the developments that matter to their portfolios.

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