BOJ Signals More Rate Hikes as Inflation Risks Rise Amid Energy Price Pressures 
Oil Prices Steady as U.S.-Iran Truce Uncertainty and Middle East Tensions Keep Markets on Edge 
Gold Prices Slide as Hawkish Fed and Strong Dollar Weigh on Bullion 
China’s AI Manufacturing Boom Masks Weak Consumer Economy, Citi Says 
Oil Prices Slide as U.S.-Iran Deal and Hormuz Reopening Ease Supply Concerns 
US Stock Futures Slip After Wall Street Rally Fueled by US-Iran Deal and Chipmaker Surge 
Japan Signals Readiness to Intervene as USD/JPY Nears 161 Amid Yen Weakness 
Canada, British Columbia Launch $5 Billion Infrastructure Partnership to Boost Housing, Transit, and Healthcare 
Italy’s Economy Outpaces Eurozone Peers as Investment Spending Fuels Growth 
Russian Stocks End Flat as MOEX Index Hits New 52-Week Low 
US Stock Futures Recover as Iran Signals Progress in Peace Talks 
Yen Near 40-Year Lows Despite BOJ Rate Hike, Markets Brace for Possible Intervention 
China Keeps Loan Prime Rates Unchanged for 13th Straight Month as Policymakers Prioritize Credit Demand Recovery 
Trump Questions USMCA Renewal as Trade Talks Continue 
Russia Stocks End Flat as MOEX Index Hits New 52-Week Low; Gold Falls and Oil Mixed 
Oil Prices Drop as U.S.-Iran Talks Ease Supply Concerns 
The strategy for trading EMFX encompasses a mixed bag. It is generally pro-risk through exposure to high yielders but with a modest long dollar bias by shorting low yielders that offer little value either from a carry or fundamental perspective (complete list of trade ideas in Trade Monitor). This balanced approach remains prudent.
China: January FX reserves fell a touch below US$3 trillion. China’s FX reserves declined by US$12.3 billion in January to$2.998 trillion, a touch below the psychologically sensitive US$3 trillion threshold to mark the lowest level since February 2011, down from aUS$3.993 trillion peak in June 2014.
While January trade report points to benign near-term exports trend.
Taiwan trade activity eased in January, partly on seasonal factors.
Risk on price action in EM FX overnight; for now (and absent a catalyst), it is hard to fight the trend, especially in high yielding space. It seems like any risk premium related to Trump is evaporating and there is no longer any concern about the Fed, Chinese growth, or CNY.
Reduction in risk premium is being supported by improving fundamentals – growth dynamics improving across an EM aggregate and return on assets perking up from the mid-2016 low.
While South Korean Housing market indicators softened.
Household lending likely accelerated further in Q4’16.
Next week: Trade prices and unemployment rate.
Trade recommendations:
The long dollar risk is selective and focused on low yielders (except CNH) and mostly via options.
Long USDKRW via 1x2 call spread: Good entry point with 61.8% retracement level from the September low to December high coming in around 1136. 1x2 structure improves max leverage to 9 times from 3 times in a 1x1.
Long USDSGD: via a one-touch: Worried about French elections and EUR parity? SGD 3m implied vol about 40% cheaper than EUR vol.
Long USDCNH via a 1yr seagull: Expensive to bet against the CNH. Seagull provides upside exposure that is cheapened significantly by selling expensive 1-year vol.
Long USDTWD: Tactical position to fade YTD strength in TWD; could face more formidable support above the May 2015 low (30.39).
