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17 Apr 2013
Fundamental Morning Wrap: Korea and Gold in focus
FXstreet.com (Barcelona) - This mornings institutional research has a distinctly alternative feel today, with the majority of focus edging away from the traditional majors and concentrating on Gold and event on the Korean Peninsula. Otherwise, EUR and GBP return to the fore with IMF forecasts casting a shadow on developments ahead.
GBP
Danske Bank analysts are very negative about GBP as they believe FX markets are underestimating the amount of easing that the incoming BoE governor Mark Carney will introduce. Derek Halpenny of BTMU notes that in the IMF´s recent predictions, the UK came out with a 0.3ppt downward revision to both 2013 and 2014 growth levels to now stand at 0.7% and 1.5% respectively.
EUR
Danske Bank analysts note that the Euro has recovered the last 24 hours and is now at the highest level against the dollar since February this year. The combination of Japanese asset managers moving into European bonds, risk-on, Draghi ruling out aggressive easing and stretched positioning are probably all factors supporting the euro. However, Derek Halpenny of BTMU notes that the recent IMF growth projections will have made uncomfortable reading for Eurozone policy makers.
Gold
Derek Halpenny of BTMU believes that the sudden drop in Gold is potentially indicative of the changing financial market dynamics and would concur that it doesn’t signal a severe period of risk aversion. He adds that the trigger for the move may have been the BOJ QE program which prompted Japanese retail selling of gold as gold hit a record high in yen terms and confirmed again the breakdown in the QE-gold link. Jim Reid of Deutsche Bank thinks that other real assets will likely perform better than Gold over the medium to long term from this still elevated starting point but that if we really see a money printing surge in the years ahead Gold will probably go back towards bubble territory again for a brief period. He writes, “So not great long-term value but an asset class that is prone to large upward spikes if the money creation period continues for some time as we expect it will.”
Emerging
Khoon Goh of ANZ recommends going long Won on the unwinding of geopolitical risk premium. He notes that though North Korea continues to make threats towards the South, it is hard to see how much further tensions can escalate from here, short of an actual conflict developing. He believes markets are starting to take the view that the worst is over, and that the geopolitical risk premium will gradually unwind. He writes, “Given that market positioning is still short KRW, there is scope for further gains in the won as these positions get squared up. Seasonal factors also support a rebound in won during the remainder of April.” ING analysts see the BOK’s shortfall on its inflation targeting mandate as evidence that monetary conditions are tight, which keeps them positive on long-dated KTBs. Jim Reid of Deutsche Bank notes that The KOSPI (-0.1%) underperformed after news that North Korea has rejected South Korean business owner’s requests to visit the Gaeseong joint industrial zone, with North Korea said that talks with the US are possible once it has sufficient nuclear deterrents to ward off an attack.
GBP
Danske Bank analysts are very negative about GBP as they believe FX markets are underestimating the amount of easing that the incoming BoE governor Mark Carney will introduce. Derek Halpenny of BTMU notes that in the IMF´s recent predictions, the UK came out with a 0.3ppt downward revision to both 2013 and 2014 growth levels to now stand at 0.7% and 1.5% respectively.
EUR
Danske Bank analysts note that the Euro has recovered the last 24 hours and is now at the highest level against the dollar since February this year. The combination of Japanese asset managers moving into European bonds, risk-on, Draghi ruling out aggressive easing and stretched positioning are probably all factors supporting the euro. However, Derek Halpenny of BTMU notes that the recent IMF growth projections will have made uncomfortable reading for Eurozone policy makers.
Gold
Derek Halpenny of BTMU believes that the sudden drop in Gold is potentially indicative of the changing financial market dynamics and would concur that it doesn’t signal a severe period of risk aversion. He adds that the trigger for the move may have been the BOJ QE program which prompted Japanese retail selling of gold as gold hit a record high in yen terms and confirmed again the breakdown in the QE-gold link. Jim Reid of Deutsche Bank thinks that other real assets will likely perform better than Gold over the medium to long term from this still elevated starting point but that if we really see a money printing surge in the years ahead Gold will probably go back towards bubble territory again for a brief period. He writes, “So not great long-term value but an asset class that is prone to large upward spikes if the money creation period continues for some time as we expect it will.”
Emerging
Khoon Goh of ANZ recommends going long Won on the unwinding of geopolitical risk premium. He notes that though North Korea continues to make threats towards the South, it is hard to see how much further tensions can escalate from here, short of an actual conflict developing. He believes markets are starting to take the view that the worst is over, and that the geopolitical risk premium will gradually unwind. He writes, “Given that market positioning is still short KRW, there is scope for further gains in the won as these positions get squared up. Seasonal factors also support a rebound in won during the remainder of April.” ING analysts see the BOK’s shortfall on its inflation targeting mandate as evidence that monetary conditions are tight, which keeps them positive on long-dated KTBs. Jim Reid of Deutsche Bank notes that The KOSPI (-0.1%) underperformed after news that North Korea has rejected South Korean business owner’s requests to visit the Gaeseong joint industrial zone, with North Korea said that talks with the US are possible once it has sufficient nuclear deterrents to ward off an attack.