SHORT GBPUSD/ GBPJPY: BOE EXPECTATIONS & FORECAST - FADE RALLIES
imo sterling strength/ USD weakness has opened up a great opp to get short vs the USD. Also, technically £YEN looks like it has some 400pips of downside in it available if the BOE do ease and weaken the currency (130.5). Shorting GBP$ at 1.33 opens up 250pips of easy downside profit assume the BOE deliver 25bps and 50bn of QE (the consensus) - £Yen at 1.35 opens up 400pips+ to 130.5 if there is a cut - I like selling gbpyen as it also gives exposure to long yen which post BOJ/ MOF failing to deliver is a given (nothing to stop safe haven demand dominating).
In terms of sterling forecast I think a 25bps cut and 50bn QE should spike us to lows at 1.28, with the tail-end likelihood stretched to 1.25xx if they were to cut 50bps and more QE. Personally I am owning alot of GBP downside but will TP at an earlier level e.g 1.305 and 130.5 as central bank action has had a limited impact recently/ the propensity to fade action has been high (think of RBA Yesterday). Nonetheless, I may leave some 25% on the table in order to own more of the downside possibility.
BOE Positioning I hear is building up nicely at the 1.33/4 level (though we are yet to see this transfer into realised downside for cable), and the rates markets are now full pricing well over the 25bps of cuts expected - Nominal OIS spot and forward rates are pricing - 27bps and 29bps respectively as of 12noon 2nd Aug (Spot same as 1st Aug, Fwd pricing 1bps less - 30bps on the 1st) vs the July meeting on the 12th of July there was only 25bps priced into the spot OIS curve BUT there was 31bps into the forward curve - thus we are seeing a lack of consensus e.g. whilst the spot is pricing 2bps more aggressively for the Aug meeting the Forward curve is pricing 2bps less - the spot curve is usually more conservative though so this implies that the rates market IS positioning more aggressively for the BOE this time round (since the spot is 2bps more aggressive now vs july meeting and the too rates are converging signalling the market expects a lower longer term equilibrium that a rate cut would bring). Also the 1wk and 1m GBP Libor is pricing cuts much more aggressively than for the July meeting - where July 12th had 25bps priced at 22% for 1wk and 18% for 1m, and now the 2nd of Aug has 25bps priced at 36.67% 1wk and 36.8 1m, which is the best part of 2x more aggressive. Further the options market looks to have a mildly short bias for 4th Aug expiries - with 25delta risk reversals skewed 1vol to the downside for gbpusd and 1.5vols to the downside for gbpjpy as investors look to own BOE delivery through lower risk option markets. USD should also firm up in the next few days as fed funds implied hike probabilities have stabilised and steepened up again, with a 18% probability of a hike in sept now priced vs 12% yesterday - this should help GBPUSD trade well offered tomorrow on a BOE delivery as gives USD a stronger base.
REUTERS POLL-
-STERLING SEEN AT $1.30 IN ONE MONTH, $1.26 IN THREE MONTHS AND $1.27 IN 12 ($1.31, $1.28 AND $1.29 IN JULY POLL)
GS GBP forecast:
- In its latest forecast on the GBP, analysts at Goldman Sachs see sterling at $1.20 and 90 pence per euro in 3 months, $1.25 and 80 pence per euro in 12 months.
RBC on BOE:
-Research Team at RBC, expects that the UK MPC will vote to cut Bank Rate by 25bps to 0.25% and increase the QE target by £50bn by renewing its programme of Gilt purchases over a four-month period.
Danske Bank on BOE:
-Research Team at Danske Bank, estimates that just over 25bp worth of rate cuts at this week’s Monetary Policy Committee meeting has already been priced in by the UK money market, while the overnight interest rate is priced to fall to 0.15% by the end of 2016
RBS on BOE:
-Ross Walker, Research Analyst at RBS, suggests that the UK monetary policy easing is coming in August in the form of a rate cut – probably 25bp, possibly 50bp – is the most likely part of the package.
In terms of sterling forecast I think a 25bps cut and 50bn QE should spike us to lows at 1.28, with the tail-end likelihood stretched to 1.25xx if they were to cut 50bps and more QE. Personally I am owning alot of GBP downside but will TP at an earlier level e.g 1.305 and 130.5 as central bank action has had a limited impact recently/ the propensity to fade action has been high (think of RBA Yesterday). Nonetheless, I may leave some 25% on the table in order to own more of the downside possibility.
BOE Positioning I hear is building up nicely at the 1.33/4 level (though we are yet to see this transfer into realised downside for cable), and the rates markets are now full pricing well over the 25bps of cuts expected - Nominal OIS spot and forward rates are pricing - 27bps and 29bps respectively as of 12noon 2nd Aug (Spot same as 1st Aug, Fwd pricing 1bps less - 30bps on the 1st) vs the July meeting on the 12th of July there was only 25bps priced into the spot OIS curve BUT there was 31bps into the forward curve - thus we are seeing a lack of consensus e.g. whilst the spot is pricing 2bps more aggressively for the Aug meeting the Forward curve is pricing 2bps less - the spot curve is usually more conservative though so this implies that the rates market IS positioning more aggressively for the BOE this time round (since the spot is 2bps more aggressive now vs july meeting and the too rates are converging signalling the market expects a lower longer term equilibrium that a rate cut would bring). Also the 1wk and 1m GBP Libor is pricing cuts much more aggressively than for the July meeting - where July 12th had 25bps priced at 22% for 1wk and 18% for 1m, and now the 2nd of Aug has 25bps priced at 36.67% 1wk and 36.8 1m, which is the best part of 2x more aggressive. Further the options market looks to have a mildly short bias for 4th Aug expiries - with 25delta risk reversals skewed 1vol to the downside for gbpusd and 1.5vols to the downside for gbpjpy as investors look to own BOE delivery through lower risk option markets. USD should also firm up in the next few days as fed funds implied hike probabilities have stabilised and steepened up again, with a 18% probability of a hike in sept now priced vs 12% yesterday - this should help GBPUSD trade well offered tomorrow on a BOE delivery as gives USD a stronger base.
REUTERS POLL-
-STERLING SEEN AT $1.30 IN ONE MONTH, $1.26 IN THREE MONTHS AND $1.27 IN 12 ($1.31, $1.28 AND $1.29 IN JULY POLL)
GS GBP forecast:
- In its latest forecast on the GBP, analysts at Goldman Sachs see sterling at $1.20 and 90 pence per euro in 3 months, $1.25 and 80 pence per euro in 12 months.
RBC on BOE:
-Research Team at RBC, expects that the UK MPC will vote to cut Bank Rate by 25bps to 0.25% and increase the QE target by £50bn by renewing its programme of Gilt purchases over a four-month period.
Danske Bank on BOE:
-Research Team at Danske Bank, estimates that just over 25bp worth of rate cuts at this week’s Monetary Policy Committee meeting has already been priced in by the UK money market, while the overnight interest rate is priced to fall to 0.15% by the end of 2016
RBS on BOE:
-Ross Walker, Research Analyst at RBS, suggests that the UK monetary policy easing is coming in August in the form of a rate cut – probably 25bp, possibly 50bp – is the most likely part of the package.
評論:
UPDATE:
Just wanted to add some key thoughts in here on the short GBP play..
1. If BOE fail to deliver IMO theres room for considerable topside - e.g. 1.38/9 imo - so in the event BOE pull a BOJ be prepared to cut losses quickly and turn net long, with a 1.37/8tp target.
- Reason being that down at 1.33, some 10% post brexit + recent USD weakness, there wont be much reasoning for such a weak GBP i.e. UK havent even left EU yet, neither have they started negotiations - negs wont even started until mid-2017 at best confirmed by PM May + even when negs start the UK has a 2yr "grace" period where NOTHING changes so we're looking at 3yrs post-vote until any export/ import changes come into affect. So short of the BOE delivering some easing, at 1.33 GBP is a little cheap, you can ask yourself why are we down here? Ok a few poor PMI's/ optimism which is likely to turn into some weak GDP but then you can argue sterling has adjusted lower so this should sooth some of the pain through boosted exports.
2. I ask myself how we are trading at 1.33mid given the world is short GBP and expects a firm delivery from the BOE after 7yrs of inactivity (25bps and 50bn QE the median) - this could be one of three reasons or a combination; 1) at 10% lower cable has already priced 90% of any "normal" easing measures directly after the vote as markets expected some for of easing, thus the bias to move lower is limited to 100/200pips tops; 2) Central bank confidence is low after many disappointments from some of the biggest CBs (e.g. BOJ/ ECB ect) so spot positioning is weak (option positioning favoured exposure), money is waiting to "play the print" and we will see a considerable move lower if easing materialises; 3) Central Bank action is no longer the macro driver of past - yield seeking/ risk sentiment now dominates currency flows - think RBA on tuesday, cut 25bps with Aussie$ trading at quite well bid levels, yet only managed to fall 50pips before paradoxically sling-shoting back up 130pips, signalling that CBs have less sway in the ccy markets.
Just wanted to add some key thoughts in here on the short GBP play..
1. If BOE fail to deliver IMO theres room for considerable topside - e.g. 1.38/9 imo - so in the event BOE pull a BOJ be prepared to cut losses quickly and turn net long, with a 1.37/8tp target.
- Reason being that down at 1.33, some 10% post brexit + recent USD weakness, there wont be much reasoning for such a weak GBP i.e. UK havent even left EU yet, neither have they started negotiations - negs wont even started until mid-2017 at best confirmed by PM May + even when negs start the UK has a 2yr "grace" period where NOTHING changes so we're looking at 3yrs post-vote until any export/ import changes come into affect. So short of the BOE delivering some easing, at 1.33 GBP is a little cheap, you can ask yourself why are we down here? Ok a few poor PMI's/ optimism which is likely to turn into some weak GDP but then you can argue sterling has adjusted lower so this should sooth some of the pain through boosted exports.
2. I ask myself how we are trading at 1.33mid given the world is short GBP and expects a firm delivery from the BOE after 7yrs of inactivity (25bps and 50bn QE the median) - this could be one of three reasons or a combination; 1) at 10% lower cable has already priced 90% of any "normal" easing measures directly after the vote as markets expected some for of easing, thus the bias to move lower is limited to 100/200pips tops; 2) Central bank confidence is low after many disappointments from some of the biggest CBs (e.g. BOJ/ ECB ect) so spot positioning is weak (option positioning favoured exposure), money is waiting to "play the print" and we will see a considerable move lower if easing materialises; 3) Central Bank action is no longer the macro driver of past - yield seeking/ risk sentiment now dominates currency flows - think RBA on tuesday, cut 25bps with Aussie$ trading at quite well bid levels, yet only managed to fall 50pips before paradoxically sling-shoting back up 130pips, signalling that CBs have less sway in the ccy markets.
Scotiabank on BOE:
-Alan Clarke, Research Analyst at Scotiabank, expects the Bank of England to cut the Bank Rate by 25bp at the August meeting.