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Macro trading ideas ...

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Morgan Stanley is going after a $500 billion opportunity

#21
Morgan Stanley financial advisers, on average, are set to each bring in over $1 million in revenues in 2017.

That's a nearly 67% increase from the average revenues per financial advisers in 2010. But recent growth is not enough for the bank. It is setting its sights even higher, and has targeted a half a trillion dollar opportunity.

In a presentation to investors on Tuesday June 13, Naureen Hassan, the bank's chief digital officer for wealth-management, outlined how new digital offerings will draw clients from one of its key businesses to its wealth-management business.

Morgan Stanley is one of the largest administrators of company stock plans. In fact, the bank holds the stock plans of about 20% of Fortune 500 companies, according to Hassan. But the bank's wealth-management division has been largely focused on winning business with those in the C-suite, not those only their way to the C-suite. Hassan sees a $528 billion opportunity in bringing those execs onto the Morgan Stanley wealth-management platform.
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The British Pound to Weaken Near-Term v Dollar, Euro but 2018 will be Better

#22
Foreign exchange traders got a little hot under the collar in mid-June when the Bank of England came the closest to raising rates in ten years.

That three members of the 8-person Monetary Policy Committee saw raising rates as the right decision shocked markets who expected another 7-1 vote being delivered.

The reaction to the vote was higher gilt yields and a stronger Pound amidst market chatter of a potential August interest rate rise.

“Sterling may have reached a 'reset point' in terms of market perceptions. We can easily point to many potential negatives for the currency, but many of these now look to be in the price,” says Richard Kelly, head of FX strategy at TD Securities.

But that there has been no obvious follow-through in Sterling since the decision, which suggests the majority of market participants are not convinced by the latest developments.

“We do not think that this is an immediate game-changer for GBP for now,” says Kamal Sharma at Bank of America Merrill Lynch Global Research. “GBP has been unable to maintain its initial gains despite the 5-3 vote.”

Sharma argues that in ordinary circumstances, GBP may have reacted in a more sustained, positive, manner.

The price action in the Canadian Dollar in response to the Bank of Canada’s recent shift towards favouring higher rates is a prime case in point.

But this kind of traditional reaction will not necessarily apply to Sterling.

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The Big Picture From FX Positioning; 2 Trade Opportunities

#23
1- Long EUR/JPY:

Despite the good performance of EURJPY since last summer, the market remains short and this position could adjust further. Long EURJPY was one of our year-ahead trades, which expired in the money a month ago. We remain long EURJPY in the medium term and are waiting for the right level to reintroduce a trade

2- Long EUR/GBP

GBP positioning estimates reflect some Brexit complacency, as the market is short EURGBP compared with the historical average. We recently introduced a long EURGBP trade via options expecting very difficult Brexit negotiations, at least at the initial stages

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UBS asks 'Where is value in G10 FX?" Says "EUR looks quite cheap ...'

#24
A piece from UBS for the weekend, from their most recent Global Macro Strategy
In (very) brief and focusing on the EUR

Central banks are tightening amid falling rates of inflation and declining oil prices
  • In the short term, this is triggering a mini dollar rally
  • The new macro cycle suggests investors fade short-lived cycles and use them to position for long-term trends ... investors need to identify pockets of "long-term" value
Building our UBS FX Value frameworks ... based on the analysis of G10 current account dynamics

(Note, UBS give a heads up that "No single model gives the complete picture". Good advice indeed.)

Some key results:

EUR cheap, GBP, CAD & CHF expensive
  • EUR looks quite cheap even as we adjust for the large output gap in the Euro-area and the structurally large surplus.
  • USD & JPY signals are weak and inconclusive.
Back to the short term;
  • We have argued that EUR/$ at current levels would face short-term speed limits. Low inflation would underpin a gradualist ECB policy and, against this backdrop, a rapid EUR move higher would force meaningful adjustments to the ECB's inflation forecast.
  • Instead, the rapid easing in US financial conditions argues against the market pricing for an upcoming Fed Pause.
  • Relative to market expectations, the balance of surprise in the communication of the two main central banks has favoured a mini dollar rally, which could tactically extend.
  • This is likely to create better entry levels to buy EUR/$

UBS VIEW:

  • We remain bullish EUR/USD from a long-term perspective, but near-term risk-reward has deteriorated, and we would focus positions elsewhere.
  • We remain bullish EUR/GBP and EUR/CHF, and would trade continuing growth recovery in the Euro area through long CZK and SEK.
  • EUR/USD should grind higher over time, as Eurozone political risk has been reduced, and growth (and policy) resynchronization between the US and Euro area continues.
  • Over a longer time horizon we expect EUR/USD to continue rising toward fair value, which we see as being around 1.25. This should be gradual, however.
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Dr. Weidmann Signals Potential for Notable Euro Strength

#26
The European Central Bank (ECB) should soon start discussing the end of its unprecedented stimulus programme in response to improving economic growth and inflation says Bundesbank president Jens Weidmann.

Weidmann told German newspaper Welt am Sonntag that the ECB should not make any further changes to the key parameters of its bond purchase scheme.

The comments signal the potential for the Euro to appreciate notably over coming months, provided other members of the ECB fall in line with the German.

For those watching the Pound to Euro exchange rate, this could signal the potential for sustained downside.

The ECB’s programme of buying bonds - known as quantitative easing - and keeping interest rates at record-lows, have been cited as being a key reason for persistent Euro weakness.

Indeed, on most measurements the Euro should be substantially higher were it not for the artificial influence of the ECB.

Analysts at UBS have noted the Euro to be substantially undervalued following a series of studies into the currency’s valuation:

“Most valuation models, including PPP and current account-based FEER, indicate that EUR/USD fair value is between 1.25 and 1.35,” say UBS.

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Draghi Boosts Euro on Hint of QE Taper, British Pound Sheds 0.75% in Value

#27
European Central Bank President Mario Draghi woke the foreign exchange markets from their recent slumber as he pointed to a long-anticipated shift in policy over coming months.

Draghi told an audience in Sintra, Portugal, that while stimulus is still needed to support the Eurozone economy, the scale of that support is not as large as it once was.

“It was his shift of emphasis from ‘very substantial’ to ‘considerable’ where stimulus was concerned that really got everyone talking,” says Chris Beauchamp at IG in London. “This Delphic hint that a reduction in QE was possible was sufficient to send the Euro higher.”

When it comes to central bankers, subtlety is key.

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EUR/USD: Overshoot and Set To Correct S/T; Wider Range Ahead

#28
There are a number of short-term metrics that suggest EUR/USD has overshot and therefore could correct over the short-term.

There is the added element of increased volatility risk due to the potential lack of liquidity in the early part of next week due to US Independence Day on Tuesday. .

FOMC minutes will be released on 5th July from the June meeting when the fed funds rate was hiked. ECB Chief Economist Peter Praet will speak on Tuesday and his comments may be important following Draghi’s comments this week. We lean toward a bearish bias on the basis that the move this week may have overshot

In line with this view, a bearish bias on EUR/USD next week remains but has widened out the range to 1.1150-1.1600 to highlight the risk that momentum could take this move further still in the week ahead and equally, there is scope for a notable correction back the other way.

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Markets continue to adjust to hawkish shift from central banks

#29
The British pound/U.S. dollar (GBP/USD) currency pair breaks 1.30 and nears nine-month high; spike in European yields may be adding equities to slip in recent days; Plenty of data today as central bankers take a day off.

Friday is shaping up to be much like the days that preceded it, with equities set for another negative start and sterling building on recent gains as yields continue to climb in response to this week’s central bank commentary.

Sterling has got off to another positive start on Friday as it takes another run at 1.30 against the dollar. Once again the pair has breached the level but has so far failed to break above the highs set in the middle of May of 1.3048, a break of which would see it trade at its highest level in nine months.

Rising yields in the UK and European bonds are driving the moves in sterling and the euro – both of which are up more than 2% on the dollar this week – with the slew of commentary from prominent central bankers being deemed much more hawkish than anticipated. The quite deliberate shift, particularly from the Bank of England, is a significant shift from policy makers with previous comments being broadly neutral or erring on the dovish side. The inflation scenario in the UK is clearly spooking policy makers at the BoE – as seen by this month’s vote – far more so than it was investors who were largely shrugging it off.

The sharp moves in bond markets may also be aiding the declines in equity markets in recent days, while futures are indicating that we’re facing another day in the red with small losses seen at the open. It’s also worth noting that today is quarter-end which may have some impact on how equities trade throughout the session.

We may not be flush with central bankers today, as has been the case for much of the week so far, but there will be a constant stream of data released throughout the day which should keep things interesting. Flash CPI data from the eurozone is the most noteworthy this morning, coming as the ECB contemplates trimming the monthly bond purchases again. We’ll also get the final release of first quarter UK GDP, which is expected to remain unchanged at 2%. This will be followed this afternoon by a number of releases from the U.S. including inflation, income and spending figures.

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Major ECNs Volumes Sharply Declined in June 2017 after Volatile May

#30
Declines in trading volumes during June 2017 were the general trend for GTX, FastMatch and Hotspot.

The volatility of May 2017 caused by the French elections and other political developments led to all major Electronic Communication Networks (ECNs) showing declines month-on-month (MoM) in terms of trading volumes. However, a different image emerges when viewing the figures on a year-on-year (YoY) basis, especially for one of the networks.

GTX:

GAIN Capital’s institutional unit GTX has just reported its latest monthly turnover for June 2017, which declined across both ECN + SEF and swap deals, in contrast to growth recorded in May. In terms of the total turnover of ECN + SEF and swap deals, GTX dropped 12 per cent from $306.5 billion to $270.1 billion. The sharpest decline was seen in swap deals, which declined by 46 per cent down compared to May 2017.

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