6 Jan 2014
Flash: Broad-based USD gains to continue in Q1 2014 - Nomura
FXstreet.com (Bali) - Looking into Q1 2014, Jens Nordvig, FX Strategist at Nomura, sees recent trends of subdued volatility, gradually higher rates, emerging markets underperformance, and broader-based dollar gains to continue.
Key Quotes
"The price action since the December FOMC meeting shows that the market is now comfortable with the notion of tapering. In contrast to the tapering scares in June 2013 and August 2013, the actual tapering announcement has been taken in stride by equity markets and has seen broad-based USD gains, rather than gains concentrated versus EM currencies"
"The recent divergence between growth momentum in DM and EM space seems likely to persist for the time being. This is the message from recent PMI indicators and broader growth trends. Moreover, given the limited policy flexibility available on both fiscal and monetary fronts, we don't see a change in policy altering this picture in short order. For example, financial conditions have generally tightened over the course of the last year in a number of emerging markets (as local rates have risen), and the economic impulse from this shift remains in the pipeline into 2014."
"Most likely, any drift higher in US yields will be a relatively orderly process. For example, convexity effects are not likely to be large in the current phase of the adjustment process. In addition, there is evidence that higher yield levels are starting to look attractive to both foreign and domestic investors (based on simple carry considerations) and that the volatility shock from mid-2013 has already been digested to a large degree."
Key Quotes
"The price action since the December FOMC meeting shows that the market is now comfortable with the notion of tapering. In contrast to the tapering scares in June 2013 and August 2013, the actual tapering announcement has been taken in stride by equity markets and has seen broad-based USD gains, rather than gains concentrated versus EM currencies"
"The recent divergence between growth momentum in DM and EM space seems likely to persist for the time being. This is the message from recent PMI indicators and broader growth trends. Moreover, given the limited policy flexibility available on both fiscal and monetary fronts, we don't see a change in policy altering this picture in short order. For example, financial conditions have generally tightened over the course of the last year in a number of emerging markets (as local rates have risen), and the economic impulse from this shift remains in the pipeline into 2014."
"Most likely, any drift higher in US yields will be a relatively orderly process. For example, convexity effects are not likely to be large in the current phase of the adjustment process. In addition, there is evidence that higher yield levels are starting to look attractive to both foreign and domestic investors (based on simple carry considerations) and that the volatility shock from mid-2013 has already been digested to a large degree."