Stronger Australia CAPEX

Market Brief

Forex markets were quiet in the Asian session as the US Thanksgiving Holidays have slow trading activity. Asian regional equities indices were mixed as the Nikkei was down 1.1% while the Shanghai composite rose 0.4% (linger effect of PBoC rate cut) and Kospi increased 0.2% (S&P and Eurostoxx futures are up slightly). In the FX markets, EURUSD was range bound for most of the session but fell sharply to 1.2491 on weak Spanish inflation data (-0.5% vs. -0.3% exp). USDJPY drifted lower to 117.24 as weak US data eroded the USD dominance (bearish short-trend replicated in EM FX). AUDUSD rallied to 0.8615 on the stronger than expected CAPEX survey. EURCHF bounced around the 1.2020 levels.

In Australia, private capital expenditure Q3 unexpectedly climbed 0.2% vs. -1.9% expected fall. This pushed up the Q2 growth rate revised higher to 1.6% from 1.1% earlier read. In addition, buildings and structures dropped 1.9%, while equipment , plant and machinery rose 4.4%. Elsewhere, HIA new home sales in October jumped 3.0% m/m, reaching a four-month high. In China, October Industrial profits dropped 2.1%y/y after rising 0.4% the previous month. This was the largest fall since the summer of 2012. Data from New Zealand showed trade deficit narrowed to NZ$908mn worse than the anticipated NZ$642mn deficit. Exports rose to NZ$4.03bn however imports were also larger at NZ$4.98bn vs. NZ$4.60bn expected.

With the Americans out on holidays, we have a light overall calendar. Traders will be watching EU M3 and confidence reads, "Flash" German HICP and ECB speak from Constancio talks at 4:00 EST, Draghi speaks at 6:30 EST, and Weidmann speaks in Frankfurt at 7:15 EST. We suspect that the argument for ECBs full blow QE is all but solidified increasing the probably that at next week’s meeting we could see a meaningful step in that direction. This should prompt further EUR weakness ahead. Yesterdays, US data was weaker with durable goods, initial claims and the Chicago PMI all missing market expectations. However, FX trading algorithms are majority long USD, so the momentum play is for further USD strength. We suspect that any corrective USD pullback will be limited.