Monday November 2, 2009 - 10:26:21 GMT
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Lloyds TSB Financial Markets - www.lloydstsb.com/corporatemarkets
Forex - Daily Market Strategy
Daily Market Strategy
Monday, 2 November 2009
â€˘ Bond yields steady ahead of PMI/ISM data
â€˘ RBA tonight: short GBP/AUD position favoured
A surge in the VIX index to a near five-month high testifies to the heightened state of alert in global markets following a tumultuous end to last week and the re-emergence of a global element of fear (CIT bankruptcy). As discussed in our FX weekly, we go against IMM speculative flows and like being short GBP vs the major G10 crosses based on the outlook for further BoE action on Thursday with regard to QE and a possible re-assessment of the interest rate structure (bank/commercial bank reserves rate). For gilts and short sterling, we like being long and see mileage for lower yields across the curve. Shifts in the curve structure will essentially depend on 1/ the size of additional gilt purchases and 2/ any cut in commercial bank reserve rate. The former without the latter would favour a flatter curve.
Ahead today: the UK Oct manufacturing PMI will set the tone at 9.30. Our economics team has pencilled in a rise to 49.8, below 50.0 consensus. A positive surprise for the US manufacturing ISM looks extremely likely following the strong Chicago PMI. Construction spending and pending home sales are forecast to come in weak...
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