Founder & Chief Market Strategist - SAV Markets, SAV Markets

Shyam Devani

Founder & Chief Market Strategist - SAV Markets

Technical Analysis

This note takes a thorough look, through a technical lens, of major JPY crosses as nearly all show bullish breakouts across the board.When seen in conjunction with rising yields, higher commodity prices, and stable stocks, we get a fuller picture of the reflationary trends that have re-emerged across markets except in Japan where deflationary concerns (even in the face of rising wholesale prices) are never far away. This keeps the JPY the favoured funding currency, as usual.Keep in mind that US yields are likely to continue higher still – the target for US 5-year yield is 1.80% which will probably take a few months to achieve. Such a development would most likely put US 10-year yield well above 2.00%.The only trend, at this juncture, that is beginning to look mature is the rally in Brent Crude, which has effectively met the $85 target area that has been in place for over a month. That does not mean we will reverse but instead could slow down or consolidate ahead of big levels just below $90.

This note takes a thorough look, through a technical lens, of major JPY crosses as nearly all show bullish breakouts across the board.When seen in conjunction with rising yields, higher commodity prices, and stable stocks, we get a fuller picture of the reflationary trends that have re-emerged across markets except in Japan where deflationary concerns (even in the face of rising wholesale prices) are never far away. This keeps the JPY the favoured funding currency, as usual.Keep in mind that US yields are likely to continue higher still – the target for US 5-year yield is 1.80% which will probably take a few months to achieve. Such a development would most likely put US 10-year yield well above 2.00%.The only trend, at this juncture, that is beginning to look mature is the rally in Brent Crude, which has effectively met the $85 target area that has been in place for over a month. That does not mean we will reverse but instead could slow down or consolidate ahead of big levels just below $90.

Fixed Income and Currency Strategist

Gautam Jain, PhD, CFA

FX & Rates

With the US dollar and EM currencies on aggregate trading in a range for much of the year, their volatilities have dropped to the lowest level since the start of the pandemic. Since a drop in volatility engenders a carry-trade environment, we test this hypothesis on EM currencies and conclude that indeed currencies with high risk-adjusted carry have been outperforming, and vice versa. A currency that we continue to like from the perspective of improving carry is the Chilean peso.Separately, the attached file is a snapshot of the EM currency market in which we seek to identify the leaders and laggards among currencies by comparing the performance of each to its history as well as to other currencies based on their respective betas to an EM currency index.

With the US dollar and EM currencies on aggregate trading in a range for much of the year, their volatilities have dropped to the lowest level since the start of the pandemic. Since a drop in volatility engenders a carry-trade environment, we test this hypothesis on EM currencies and conclude that indeed currencies with high risk-adjusted carry have been outperforming, and vice versa. A currency that we continue to like from the perspective of improving carry is the Chilean peso.Separately, the attached file is a snapshot of the EM currency market in which we seek to identify the leaders and laggards among currencies by comparing the performance of each to its history as well as to other currencies based on their respective betas to an EM currency index.

FX Dashboard: Are EM Currencies in a Carry-Trade Environment?

Founder

Olivier Desbarres

Exacting. Excellent. Exceeding. Exemplary.

4X Global Research

4X Global Research was founded in 2017 to provide institutional and corporate clients with the substantive research, high-quality analysis and thoughtful insight on Emerging and G20 economies and financial markets they need to make informed and timely decisions and gain an edge in their investments.

In the past couple of months governments in Asia-Pacific have materially accelerated the administration of Covid-19 vaccines.But because of low starting points, vaccination rates remain low compared to the EU, US and UK and even a number EM economies (including Turkey). The exceptions are Korea, Malaysia and Japan which have now administered a similar number of doses per capita as the US, while Singapore has pulled further ahead. In countries where governments started to vaccinate early such as the US and in particular the UK, vaccine roll-outs have slowed materially in the past nine weeks. These countries are taking additional measures to encourage those not yet vaccinated to do so and there is talk of jabs for under-18s and of booster jabs at least for the most vulnerable.The picture for the increase in Covid-19 deaths since early July is even more granular. In countries where governments started vaccinating early and now have high rates of vaccination, including the UK, US and EU, the number of deaths has perhaps unsurprisingly increased only marginally. The rate of increase and total number of deaths remain negligible in New Zealand despite a sill modest vaccination roll-out. It has to varying degrees been a similar situation in Australia, Korea, Japan, Singapore and Taiwan.The increase in deaths has also been modest in India and Philippines, albeit from a higher starting point. The increase in deaths has been far higher in Indonesia, Malaysia and in particular Thailand.  Vaccination rates are a critical variable from a health and economic perspective but their direct impact on currencies has been mixed.New Zealand Dollar has outperformed but is not particularly expensive in our view. Going forward we would expect it to remain well supported even if still vulnerable to pull-backs.

In the past couple of months governments in Asia-Pacific have materially accelerated the administration of Covid-19 vaccines.But because of low starting points, vaccination rates remain low compared to the EU, US and UK and even a number EM economies (including Turkey). The exceptions are Korea, Malaysia and Japan which have now administered a similar number of doses per capita as the US, while Singapore has pulled further ahead. In countries where governments started to vaccinate early such as the US and in particular the UK, vaccine roll-outs have slowed materially in the past nine weeks. These countries are taking additional measures to encourage those not yet vaccinated to do so and there is talk of jabs for under-18s and of booster jabs at least for the most vulnerable.The picture for the increase in Covid-19 deaths since early July is even more granular. In countries where governments started vaccinating early and now have high rates of vaccination, including the UK, US and EU, the number of deaths has perhaps unsurprisingly increased only marginally. The rate of increase and total number of deaths remain negligible in New Zealand despite a sill modest vaccination roll-out. It has to varying degrees been a similar situation in Australia, Korea, Japan, Singapore and Taiwan.The increase in deaths has also been modest in India and Philippines, albeit from a higher starting point. The increase in deaths has been far higher in Indonesia, Malaysia and in particular Thailand.  Vaccination rates are a critical variable from a health and economic perspective but their direct impact on currencies has been mixed.New Zealand Dollar has outperformed but is not particularly expensive in our view. Going forward we would expect it to remain well supported even if still vulnerable to pull-backs.

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

The <a href="https://www.smartkarma.com/entities/afterpay-limited" target="_blank" data-smartkarma-citation="entities:26940:1" rel="noopener">Afterpay Touch (APT AU)</a> stock has taken a beating recently following a lot of negative press about the Buy Now Pay Later (BNPL) industry. This included a Rebel Wilson ad pulled from Australian TV after complaints from consumer protection groups for playing down the risks of taking on debt. Here in New Zealand, there have been calls for greater regulation of BNPL with families struggling to afford basics while paying off the BNPL loans.Now, <a href="https://www.smartkarma.com/entities/square-inc" target="_blank" data-smartkarma-citation="entities:23755:1" rel="noopener">Square Inc (SQ US)</a> has announced that it plans to acquire <a href="https://www.smartkarma.com/entities/afterpay-limited" target="_blank" data-smartkarma-citation="entities:26940:1" rel="noopener">Afterpay Touch (APT AU)</a> in an all-stock deal that values Afterpay at a 30% premium to its last close. <a href="https://www.smartkarma.com/entities/afterpay-limited" target="_blank" data-smartkarma-citation="entities:26940:1" rel="noopener">Afterpay Touch (APT AU)</a> shareholders will receive 0.375 shares of <a href="https://www.smartkarma.com/entities/square-inc" target="_blank" data-smartkarma-citation="entities:23755:1" rel="noopener">Square Inc (SQ US)</a> Class A common stock for each Afterpay share they hold on the record date. <a href="https://www.smartkarma.com/entities/square-inc" target="_blank" data-smartkarma-citation="entities:23755:1" rel="noopener">Square Inc (SQ US)</a> may elect to pay 1% of total consideration in cash. The transaction values <a href="https://www.smartkarma.com/entities/afterpay-limited" target="_blank" data-smartkarma-citation="entities:26940:1" rel="noopener">Afterpay Touch (APT AU)</a> at A$39bn.The transaction is expected to close in the first quarter of 2022 subject to shareholder approval, receipt of regulatory approvals and no material adverse effect in relation to <a href="https://www.smartkarma.com/entities/afterpay-limited" target="_blank" data-smartkarma-citation="entities:26940:1" rel="noopener">Afterpay Touch (APT AU)</a> or <a href="https://www.smartkarma.com/entities/square-inc" target="_blank" data-smartkarma-citation="entities:23755:1" rel="noopener">Square Inc (SQ US)</a>.<a href="https://www.smartkarma.com/entities/square-inc" target="_blank" data-smartkarma-citation="entities:23755:1" rel="noopener">Square Inc (SQ US)</a> intends to establish a secondary listing on the ASX to allow <a href="https://www.smartkarma.com/entities/afterpay-limited" target="_blank" data-smartkarma-citation="entities:26940:1" rel="noopener">Afterpay Touch (APT AU)</a> shareholders to trade <a href="https://www.smartkarma.com/entities/square-inc" target="_blank" data-smartkarma-citation="entities:23755:1" rel="noopener">Square Inc (SQ US)</a> shares via CHESS Depositary Interests (CDIs) on the ASX. We expect the Square CDIs to be included in the <a href="https://www.smartkarma.com/entities/s-p-asx-200" target="_blank" data-smartkarma-citation="entities:22901:1" rel="noopener">S&amp;P/ASX 200 (AS51 INDEX)</a> replacing <a href="https://www.smartkarma.com/entities/afterpay-limited" target="_blank" data-smartkarma-citation="entities:26940:1" rel="noopener">Afterpay Touch (APT AU)</a>, though the free float on the CDIs will be lower.

The Afterpay Touch (APT AU) stock has taken a beating recently following a lot of negative press about the Buy Now Pay Later (BNPL) industry. This included a Rebel Wilson ad pulled from Australian TV after complaints from consumer protection groups for playing down the risks of taking on debt. Here in New Zealand, there have been calls for greater regulation of BNPL with families struggling to afford basics while paying off the BNPL loans.Now, Square Inc (SQ US) has announced that it plans to acquire Afterpay Touch (APT AU) in an all-stock deal that values Afterpay at a 30% premium to its last close. Afterpay Touch (APT AU) shareholders will receive 0.375 shares of Square Inc (SQ US) Class A common stock for each Afterpay share they hold on the record date. Square Inc (SQ US) may elect to pay 1% of total consideration in cash. The transaction values Afterpay Touch (APT AU) at A$39bn.The transaction is expected to close in the first quarter of 2022 subject to shareholder approval, receipt of regulatory approvals and no material adverse effect in relation to Afterpay Touch (APT AU) or Square Inc (SQ US).Square Inc (SQ US) intends to establish a secondary listing on the ASX to allow Afterpay Touch (APT AU) shareholders to trade Square Inc (SQ US) shares via CHESS Depositary Interests (CDIs) on the ASX. We expect the Square CDIs to be included in the S&amp;P/ASX 200 (AS51 INDEX) replacing Afterpay Touch (APT AU), though the free float on the CDIs will be lower. 

Afterpay (APT AU) - Square Is Buying Now in an All Stock Deal

The Chilean peso has given up its outperformance from earlier this year following the central bank's dovish hike. We remain constructive on the currency on the back of the market-friendly outcome of the presidential primaries last weekend, upward revisions to Chile's growth, the outlook for copper prices, and the possibility that the central bank raises rates faster than currently priced.Separately, the attached file is a snapshot of the EM currency market in which we seek to identify the leaders and laggards among currencies by comparing the performance of each to its history as well as to other currencies based on their respective betas to an EM currency index.

The Chilean peso has given up its outperformance from earlier this year following the central bank's dovish hike. We remain constructive on the currency on the back of the market-friendly outcome of the presidential primaries last weekend, upward revisions to Chile's growth, the outlook for copper prices, and the possibility that the central bank raises rates faster than currently priced.Separately, the attached file is a snapshot of the EM currency market in which we seek to identify the leaders and laggards among currencies by comparing the performance of each to its history as well as to other currencies based on their respective betas to an EM currency index.

FX Dashboard: Stay Bullish on the Chilean Peso

Australia

The Australian dollar is the official currency of the Commonwealth of Australia.

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AUD (USDAUD CURNCY)

JPY Crosses Continue to Trend

JPY weakness continues to come through as reflationary trends re-emerge while Japanese yields remain extremely low thus making the Yen the chosen...

Shyam Devani

FX Dashboard: Are EM Currencies in a Carry-Trade Environment?

As the volatilities of the US dollar and EM currencies have dropped, we test the hypothesis and conclude that EM FX is in a carry-trade...

Gautam Jain, PhD, CFA

Vaccination and Currency Immunity

Vaccination rates matter but for some Asia-Pacific countries, economies and currencies they are not proving to be a panacea.

Olivier Desbarres

Afterpay (APT AU) - Square Is Buying Now in an All Stock Deal

Square is looking to acquire Afterpay in an all stock deal that values Afterpay at A$39bn, a 30% premium to its last close. The premium is the...

Brian Freitas

FX Dashboard: Stay Bullish on the Chilean Peso

We remain constructive on the Chilean peso on the back of the market-friendly outcome of the presidential primaries last weekend and upward...

Gautam Jain, PhD, CFA

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