FX daily - 13.09

13.09.13
 
Economic data:
 
12:30 – UK, construction output
13:00 – EC, employment
16:30 – US, retail sales
 
 
News & risks
 
Syria
 
Financial times:
Mr Kerry called for a “quick” disclosure of details about Syria’s weapons and said: “Should diplomacy fail, force might be necessary. There ought to be consequences if it does not take place.”Russia, however, said the threat of US military action could scupper the potential for an agreement on Syria’s chemical weapons, while Syrian leader Bashar al-Assad said he would only consider signing the Chemical Weapons Convention if the US were to withdraw its threat of air strikes.

 
Mr Assad: “Syria will accept it if America stops military threats and if other countries supplying the rebels with chemical weapons also abide by the agreement.”
 
WSJ:
A secretive Syrian military unit at the center of the Assad regime's chemical weapons program has been moving stocks of poison gases and munitions to as many as 50 sites to make them harder for the U.S. to track. The movements of chemical weapons by Syria's elite Unit 450 could complicate any U.S. bombing campaign in Syria over its alleged chemical attacks. It also raises questions about implementation of a Russian proposal that calls for the regime to surrender control of its stockpile. U.S. and Israeli intelligence agencies still believe they know where most of the Syrian regime's chemical weapons are located, but with less confidence than six months ago, U.S. officials said.
 
Bloomberg:
Syria said it would abide by an international treaty banning chemical weapons, even as Assad set conditions that the U.S. lift its threat of military strikes and stop arming Syrian rebels. U.S. Secretary of State John Kerry effectively rejected Assad’s conditions yesterday and demanded swift disclosure by Syria of its chemical arsenal as he met in Geneva with Russian Foreign Minister Sergei Lavrov on a plan for international monitors to take charge of the weapons until they can be destroyed. The talks resume today. While all sides pledged to continue seeking a diplomatic solution, the first day of talks indicated how difficult and time-consuming that effort could be. The major parties demanded political concessions that would be difficult or impossible for the others to make, in addition to the practical challenges that would confront weapons inspectors amid Syria’s turmoil. “It’s too early to tell whether or not these efforts will succeed, but the technical challenges of trying to do this in the context of a civil war are obviously immense,” Kerry told reporters yesterday.
 
Fed tapering
 
WSJ:
A majority of economists surveyed by The WSJ — 66% of the 47 who responded—expect the Fed to say at next week's policy meeting that it will begin cutting back its bond purchases, a widely anticipated milestone in a period of extraordinary monetary policy
 
Big picture
 
 
GS FX monthly
 
The most positive growth surprises among the large economies occur in Europe currently, with the UK leading the pack. With investors still under-exposed to European assets since the Euro area crisis, there is scope for more capital inflow into the region. US growth expectations are higher in terms of their absolute level but have not been revised upwards recently. US capital outflows remain a key feature of the FX market currently.
 
European currencies, and in particular the EUR and GBP,have the biggest potential to rally into year-end, as upward revisions to expectedreturns likely lead to more inflows.
 
 
 
 
GS research – The case for Equities continues.
 
In case you missed it earlier in the week here is a summary of our Research teams’ latest GOAL – Global strategy paper: We continue to believe that the prospects of stocks remain strong. We believe we are in transition from the ‘Hope’ phase – the initial strong phase of an equity market recovery based on expectations — into a ‘Growth’ phase – the second stage of the cycle driven by earning and dividend growth. This phase tends to be longer but with more moderate returns and low volatility. Our forecasts for asset classes suggest annualised total returns of 17.6% on average for equities out to end-2015, compared with 0.3% for government bonds and 2.1% for corporate bonds. We believe that the equity market is in transition from a long period of high volatility with low return, (a ‘Fat & Flat’ market), to a lower volatility, upward-trending market (‘Skinny & Strong’) as global activity gradually normalizes while big output gaps keep inflation low and stable. A more stable trending market should result in lower stock correlation within sectors and more alpha opportunities.
 
 
 
 
 
 
 
 
 
Reuters
 
Europe took a significant step forward in its ambitions to create a single banking framework for the euro zone on Thursday after EU lawmakers granted new powers to the ECB to oversee the currency bloc's banks. The plan approved by an overwhelming majority of the European Parliament will allow the ECB in Frankfurt to oversee around 6,000 banks in the 17 euro zone countries. While Thursday's vote completes the last legislative step towards ECB supervision, many more challenging obstacles remain before banking union — which also hopes to establish a single euro zone authority to wind up bad banks — is finalised. «Today marks a real step forward in setting up a banking union,» said ECB President Mario Draghi, adding that the central bank would push ahead rapidly with hiring the staff and building the institutional capacity to supervise the banks. Banking union, conceived as a three-stage process involving a single bank supervisor, a single resolution authority and a single deposit-guarantee scheme, is the most ambitious project launched since the region's debt crisis and is designed to provide a stronger underpinning to the single currency project. It marks a new phase of deeper integration among the euro zone countries, but also comes with complex issues of sovereignty, with Germany, the euro zone's most powerful member state, concerned about an over-centralization of powers.