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nomura central banks dump dollar

nomura central banks dump dollar

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Published by: afonteve on Mar 16, 2011
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Nomura Securities International, Inc.
See Disclosure Appendix A1 for the Analyst Certification and Other Important Disclosures
Capital Flow Monitor (TIC)
FX Research and Strategy | G10
Weakness persists into 2011
TIC data for January showed still relatively weak private and official demand for US assets. This follows on from very weak flows at the end of 2010, especially in the central bank space. Higher frequency data indicate that February was a stronger month for US capital flows, including in fixed income, but from a very low base.
January TIC data released this morning show an overall weak start to 2011 for theUS capital flow picture:
Private inflows into US assets 
came in at $23bn, half the average pace of inflowsseen over Q4. This was primarily due to a reduction of Treasury bill holdings(-$12bn) as well as weaker-than-expected inflows into US equities (which did notreflect the general rise seen in retail fund flow data during January). On the otherhand, private outflows into foreign securities picked up significantly in January($23bn vs. an average outflow of $13bn over the previous six months). This isclose to the outflow seen in October (a period we like to term the QE2 bonanza).
Official flows 
told a similar story, as net inflows in January amounted to only $5bn($11bn when adjusting for flow through the UK). Over the three month period fromNovember-January, central banks actually reduced their dollar holdings by $9bn.Even though December and January were weak months for global reserveaccumulation, outright dollar selling points to reduced USD allocations. This mayhelp explain the underperformance of the dollar despite improved economic data inthe US and an improved appetite for US equities from international investors.Higher frequency data suggest that the TIC data for February could be better. NYFed custody data showed a pickup in dollar buying in the first half of February,indicating that official inflows may be improved. Recent Treasury bond auctionshave also been strong, as the 3yr, 10yr and 30yr auctions all demonstrated strongbid-to-cover ratios and non-dealer demand in line with historical averages. Butinflows into risk assets, such as US equities, are more uncertain again, given theincrease in global risk aversion.
Figure 1. Official inflows vs. total reserve accumulation Figure 2. Outflows vs. inflows into risk assets
Note: Dollar accumulation is estimate based on TIC data.Source: Nomura.Source: US Treasury, Nomura.
-20020406080100120140Jan-10 Apr-10 Jul-10 Oct-10 Jan-11$bn 3mmaTotal Reserve AccumulationDollar accumulation (TIC)-30-20-10010203040Jan-09 Jun-09 Nov-09 Apr-10 Sep-10$bnInflows into US risk assetsOutflows into foreign risk assets
16 March 2011
Contributing Research Analysts 
Jens Nordvig
Anish Abuwala
+1 212 667 9934anish.abuwala@nomura.com
Jennifer Hau
+44 20 7102 9669ennifer.hau@nomura.com
This report can be accessedelectronically via:www.nomura.com/researchor onBloomberg: NOMR <GO>
Nomura| Capital Flow Monitor (TIC) March 16, 20112
Private portfolio flows
quarterly annualized (Nomura estimate for Q4 2010)
Private portfolio flows in US assets
Demand for Treasuries firmed up post QE2.Demand for Agencies deteriorates further.Decline in interest for US corporate debt.Equities inflows remain resilient.
Private portfolio flows in foreign assets
Foreign bond buying fall off post QE2
but outflows into foreign equities increased.
Note: Nomura estimates for Q1 2011 (last data point).Source: US Treasury, Nomura.
05 06 07 08 09 10 11$bn
US Treasuries
Short-TermLong-TermTotal Treasuries
-600-400-200020040060080005 06 07 08 09 10 11$bnannualized
US Agency Debt
Short-TermLong-TermTotal Agency
20030040050005 06 07 08 09 10 11
US Corporate Bonds
Corp-Non-ABSCorp-ABSTotal Corp. Bonds
30040050005 06 07 08 09 10 11
US Equities
05 06 07 08 09 10 11$bn
Foreign Bonds
-300-200-100010020030005 06 07 08 09 10 11$bnannualized
Foreign Equities
Nomura| Capital Flow Monitor (TIC) March 16, 20113
Total private portfolio inflows and M&A flow trends
Private portfolio flows ex-CaribbeanM&A flows (quarterly, not annualized)
Completed US positive deals still sitting at low levels.M&A flows out of the US slightly higher.M&A pipeline was modestly dollar bullish in Q4
…with inflows
edging higher than outflows.
Note: Nomura estimates for Q1 2011 (last data point).Source: US Treasury, Thomson Reuters, Nomura.
-400-20002004006008001,0001,2001,4001,60005 06 07 08 09 10 11$bnannualized
Total net private flows in US assets
Total net private flows in US assetsEx-Caribbean
-400-20002004006008001,0001,2001,4001,60005 06 07 08 09 10 11$bnannualized
Total net private flows
Total net private flowsEx-Caribbean
02040608010012014005 06 07 08 09 10 11
Completed M&A Inflows
US$ bn
-140-120-100-80-60-40-20005 06 07 08 09 10 11
Completed M&A Outflows
US$ bnUS$ bn
02040608010012014005 06 07 08 09 10 11
Announced M&A Inflows
US$ bn
-140-120-100-80-60-40-20005 06 07 08 09 10 11
Announced M&A Outflows
US$ bn

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