Quartz Daily Brief—US-Iran icebreaker, Abe’s “womenomics,” JP Morgan’s mounting legal bill

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Good morning, Quartz readers!

What to watch for today

Engaging with Iran. US secretary of state John Kerry and his counterparts from five other major powers will meet with the Iranian foreign minister, Mohammad Javad Zarif, perhaps setting the ball rolling on a diplomatic solution to Iran’s nuclear weapons program. Meanwhile Iranian president Hassan Rouhani caused a stir with a disputed quote condemning the Holocaust.

US recovery picks up pace. The second and final revision of the second quarter’s GDP is likely to show that the economy grew at a 2.7% annual rate, up from a prior estimate of 2.5%. Pending August home sales, however, are expected to decline marginally.

Taiwan’s currency worry. The central bank is poised to leave benchmark rates unchanged at 1.8%, but the focus will be on the strong capital inflows that have pushed its currency to 4.5 month highs, hurting the exporters that account for almost two-third’s of Taiwan’s GDP.

Earnings kickoff. Athletic gear maker Nike’s first-quarter earnings are projected to rise 24% from the same period last year. The report could be seen as the official start of the US earnings season, since Nike has replaced Alcoa—which traditionally kicked off the season—in the Dow Jones index. Swedish apparel maker H&M could report higher revenues (paywall), but margins might drop as many of the sales were driven by discounts.

Japanese Prime Minister Shinzo Abe addresses the UN. He is expected to discuss the pro-growth, anti-deflation reforms he’s brought to the world’s third largest economy. But instead of “Abenomics,” he says he’ll focus on “womenomics.”

While you were sleeping

JP Morgan’s legal bill may top $11 billion. The largest US bank is reportedly in discussions (paywall) with regulators to settle investigations related to mortgage-backed securities by paying $7 billion in fines and $4 billion in relief to consumers.

US corporate bonds had a record month. With companies rushing to take advantage of low interest rates, the total amount of investment-grade debt issued in September is on track to surpass the $136.6 billion (paywall) record set in November 2012.

A Beijing court found a general’s son guilty of gang rape. 17-year-old Li Guanfeng, charged with three other men, received a ten-year jail sentence.

Airbus booked $15 billion of deals in Asia. The aerospace giant is selling 160 jets to Chinese and Vietnamese carriers.

Larry Ellison scored a come-from-behind America’s Cup win. The software billionaire’s Oracle Team USA won the final race in San Francisco Bay, completing a remarkable comeback after trailing 8-1.

Three major US data brokers were hacked. The attacks on D&B, LexisNexis, and Altegrity were reportedly orchestrated by a crime syndicate that sold their data online; the FBI is investigating.

The Navy Yard gunman thought the government was attacking his brain. 34-year-old Aaron Alexis, who killed 12 people in a shooting rampage last week, believed he was being subjected to low frequency electromagnetic waves.

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Quartz obsession interlude

Heather Timmons on what losing the Alibaba IPO might mean for the venerable Hong Kong stock exchange. “Is Hong Kong really the financial gateway to China? Or will increasingly muscular moves from the mainland and competition from New York and Singapore result in high-flying companies like Alibaba bypassing Hong Kong altogether?” Read more here.

Matters of debate

Janet Yellen’s lack of financial experience is a serious drawback. A Fed chair’s grasp of finance and risk is as important as the ability to understand macroeconomics.

Latin America’s middle-class mirage. Personal incomes are being boosted by state subsidies and transfers, at the expense of investment in transport, security, and utilities.

Bill Gates should follow Steve Ballmer out of Microsoft. Gates’ track record as chairman is patchy. It may be in shareholders’ best interest for him to move on.

Smartphones are changing supermarket shopping. As smartphones make shoppers less impulsive, advertisers will grow louder and more intrusive.

Losing is good for kids. Nonstop awards can actually result in lower achievement.

Surprising discoveries

America’s toilet turnaround. US commode manufacturing makes a surprising comeback.

Slaves to soccer? Nepalese migrants building stadiums for Qatar’s 2022 World Cup are subject to horrific conditions.

North Korea’s Doomsday scenario. A Rand study suggests the brittle regime could collapse with little warning, setting up a China-US military confrontation.  

Wealthy Chinese are far richer than Beijing thinks. Researchers estimate that total undeclared income in China was $1 trillion in 2011, or 12% of GDP.

A deadly earthquake created a new island. The 7.7 magnitude tremor caused a 100-foot high, 200-foot wide island to form in the sea off Pakistan’s coastline.

15% of American adults don’t use the Internet. The main reason: They’re just not interested.

Our best wishes for a productive day. Please send any news, comments, made in America toilets and tinfoil helmets to hi@qz.com. You can follow us on Twitter here for updates during the day.

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DailyFX Morning Slices: Yen Stunned by BoJ Nominee Kuroda; Euro Rallies onItalian Election Hopes

Is this the most exciting week in FX thus far in 2013? I’d say so: Britain loses her hallowed ‘Aaa’ rating on Friday after the close, when Moody’s Investors Service downgraded the United Kingdom’s sovereign debt rating to ‘Aa1,’ a one-notch downgrade; Japanese Prime Minister Shinzo Abe tapped Asian Development Bank President Haruhiko Kuroda to be the next Governor of the Bank of Japan; and the Italian elections are wrapping up, with the first exit polls due out at 09:00 EST/14:00 GMT today. Let’s address these points individually.

Although the United Kingdom has lost one of its three top credit ratings, not much is actually changing: austerity remains in place, thanks to stubborn Chancellor of the Exchequer George Osborne; growth remains weak as the Bank of England is handicapped by a divided Monetary Policy Committee; and inflation pressures continue to run higher than policymakers have forecasted. I remain very bearish on the pair, and will proceed to sell any and all rallies, barring a drastic shift in the Federal Reserve’s recently hawkish rhetoric.

The BoJ nomination is interesting because, as Sara Eisen at Bloomberg News points out, Mr. Kuroda said in November 2002 that the USDJPY was too weak at ¥120.00. With the USDJPY trading near ¥93.60, at the time this report was written, I’m can with a fair degree of certitude that Mr. Kuroda thinks that the Yen is too strong at present. With energy imports’ costs already surging, a weak Yen is likely to bring more pain.

Rounding back to the Italian elections, early indications from local media are that there are lower turnout figures, which are presumed to be positive for the Euro as it means there is a reduced likelihood of Silvio Berlusconi returning to power. This has provoked a Euro rally this morning, and should continue to do so if vindicated. I’m weary of a hung parliament though, if the Berlusconi-Grillo coalition is close. Taking a look at European credit, peripheral yields remain lower amid hopes for a Euro-positive Italian election outcome. The Italian 2-year note yield has decreased to 1.630% (-2.1-bps) while the Spanish 2-year note yield has decreased to 2.470% (-3.8-bps). Likewise, the Italian 10-year note yield has decreased to 4.351% (-8.5-bps) while the Spanish 10-year note yield has decreased to 5.069% (-5.7-bps); lower yields imply higher prices.

Best,

Christopher Vecchio, Currency Analyst
cvecchio@dailyfx.com

DailyFX Morning Slices: Euro Rally Versus US Dollar on Pause While Yen Continues to Slide

Forex: Euro Rally Versus US Dollar on Pause While Yen Continues to Slide

Yesterday’s potential groundbreaking European Central Bank policy meeting produced a massive rally by high beta currencies and risk-correlated asset; however, there’s been little continuation of this move today. The US Dollar has emerged as the top performer thus far through Friday, as investors take profits and reconsider positioning as various major currencies hover near pivotal levels ahead of next week.

There are two main focuses in FX right now: will the Japanese Yen onslaught continue; and whether or not the Euro is at a fundamental turning point. With respect to the first point, Japanese Prime Minister Shinzo Abe has stepped up his rhetoric for the Bank of Japan to implement a +2.0% yearly inflation target, meaning that speculation about potential policy changes will continue to run high until the January 22 policy meeting. As the meeting approaches, however, it is worth pointing out that the Japanese Yen is simply a very oversold currency. In fact, according to the CTFC’s COT report, net non-commercial futures positioning is at its shortest level since July 2007; the short trade is very crowded. A look at the weekly chart shows that the USDJPY hasn’t posted a negative period since the first week of November. In fact, last week’s RSI was above 80 – the last time that happened was in December 2005, which produced a pullback of >500-pips. Accordingly: seeing the Japanese Yen bottom (xxxJPY pairs top) after the BoJ would not be surprising; the conditions are ripe for a significant turnaround.

In terms of the Euro, the shift in rhetoric by ECB President Mario Draghi from ‘this is a financial crisis’ to now ‘this is an economic-growth crisis’ signals what could be a shift in policy making. Indeed, with no governments requesting a rate cut, a period of calm has descended on Europe. With the US budget negotiations set to reenter the conversation in a few weeks, the Euro could be setting up for a solid 1Q’14.

Taking a look at European credit, there’s only been slight follow through after yesterday’s strong performance, which could be constraining the Euro. The Italian 2-year note yield has increased to 1.332% (+0.7-bps) while the Spanish 2-year note yield has increased to 2.055% (+4.3-bps). On the contrary, the Italian 10-year note yield has decreased to 4.129% (-1.9-bps) while the Spanish 10-year note yield has decreased to 4.859% (-1.2-bps); lower yields imply higher prices.

 

Best,

Christopher Vecchio, Currency Analyst
cvecchio@dailyfx.com

DailyFX Morning Slices: Commodity Currencies, Yen Lead Against Weak Euro

Forex: Commodity Currencies, Yen Lead Against Weak Euro

After Friday’s Nonfarm Payrolls report did little to support the US Dollar in the post-December Federal Reserve meeting Minutes trading world, risk-appetite has seemingly steadied if not contracted to start the first full week of the year. The Japanese Yen has posted a solid rebound versus the world’s reserve currency as well as the European currencies despite gapping lower to start the week, as news headlines over the weekend suggested that new Japanese Prime Minister Shinzo Abe was increasing pressure on the Bank of Japan to endorse a +2.0% yearly inflation target at its next meeting on January 22.

Mainly, the Yen’s rebound can be credited to extremely oversold technical condition, with many Yen-crosses posting multi-month or multi-year highs in the past week. The market also remains biased short the Yen, with the most recent CFTC’s COT report showing net non-commercial futures positioning holding near its lowest levels since July 2007, despite short covering into the end of December. Fundamentally and psychologically speaking, any perceived shift in BoJ policy leading up to the meeting could lead to continued Yen weakness from now until then, whereas the Yen could strengthen once policy is solidified (similar to the US Dollar strengthening after the Fed announced QE3 in mid-September).

Away from the safe havens, the commodity currencies remain well-supported with the New Zealand Dollar notably outperforming, while the Euro has led the European currencies lower (the Swiss Franc is a follower given the EURCHF floor). This more or less has to do with the expectation that the European Central Bank will not implement any new policies this week. As I expressed in the Euro’s Weekly Trading Forecast, each meeting following the initial OMT announcement has led to greater and greater weakness; and now that the market is no longer short the Euro versus the US Dollar, there is significantly more room for weakness in the EURUSD.

Taking a look at European credit, weakness in peripheral bonds has weighed on the Euro today. The Italian 2-year note yield has increased to 1.687% (+4.9-bps) while the Spanish 2-year note yield has increased to 2.350% (+3.8-bps). Likewise, the Italian 10-year note yield has increased to 4.291% (+3.8-bps) while the Spanish 10-year note yield has increased to 5.044% (+2.8-bps); higher yields imply lower prices.

Best,

Christopher Vecchio, Currency Analyst
cvecchio@dailyfx.com