FINANCIALS: Banco Comercial Portugeus - Q1 Earnings
May-22 10:03
{3h}{PO} Credit neutral - In line. As we noted previously, in line/stable results were more than en...
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FOREX: No Let-Up for FX Risk as Lagged Effects Keenly Felt by Corporates
Apr-22 10:02
- While front-end implied vols have abated from highs, the fresh cycle low in the USD Index and lagged impacts on corporates is still a major present risk. The histogram below shows that while 3m implied is off 12m highs, it remains well above the upper quartile for the majority of G10 FX.
- The effects of broad USD volatility are also being keenly felt in the corporate world: UK AIM-listed currency risk management firm Argentex have suspended their shares after FX volatility compromised their short-term liquidity position. In an RNS release they note that if FX vols persist its liquidity position would be "significantly stretched". Full RNS post here: https://www.londonstockexchange.com/news-article/AGFX/financial-position-suspension-of-trading/16998959
- Firms like Argentex sell FX hedging products including forwards and options to corporate clients, who are then subject to margin calls should markets move against their position. In turn, the firm hedges its cumulative exposure in the wholesale market via major banking partners - but are then exposed to the same margin call risk through times of volatility. That appears to be the scenario playing out here - and is unlikely to be a one-off case.
- Distressed liquidity among corporate service providers is an effective proxy for the underlying client - and serves as a further reminder of the dangers to economic activity from even brief spells of extended FX vol.
OUTLOOK: Price Signal Summary - Bear Threat In S&P E-Minis Remains Present
Apr-22 09:46
- In the equity space, a reversal higher in S&P E-Minis on Apr 9 highlighted the start of a correction. The trend condition has been oversold following recent weakness and gains have allowed this to unwind. The contract remains below important resistance points and the trend condition is bearish. The latest move down signals the end of the corrective cycle. Sights are on 4832.00, the Apr 7 low and bear trigger. Initial resistance to watch is 5437.24, the 20-day EMA.
- EUROSTOXX 50 futures continue to trade above their recent lows. The latest bounce highlights a corrective cycle and this is allowing an unwinding of the recent oversold trend condition. Resistance levels to watch are 4978.63, the 20-day EMA, and 5113.20, the 50-day EMA. Key support and the bear trigger has been defined at 4444.00, the Apr 7 low. A break of this level would confirm a resumption of the downtrend.First support lies at 4664.00, the Apr 10 low.
GERMAN AUCTION RESULTS: Soft auction
Apr-22 09:45
- Another soft German auction (German auctions have been soft for three weeks now).
- The bids received were the lowest since August 2023 (albeit broadly similar to the volumes seen in January 2024).
- Indeed, to put it into perspective, there has only been one Schatz bid-to-cover below 2x over the past year before today (1.97x in July 2024). Today's 1.69x was therefore much softer, with the bid-to-offer at 1.29x.
- There's been no notably wider market reaction from the auction - but it is worth noting that we have now seen soft auctions in Schatz, Bobls, 10-year Green and 30-year Bunds.
