News and views
China cut its benchmark rates by 27bp and reserve requirements by 50bp, injecting a positive tone to metal markets. Gold and copper both gained around 1%. Risk-aversion, as measured by the VIX index, fell 2% to 44 (under 40 is neutral), although we note that the VIX has not correlated well with equity appetite in recent weeks. Pessimism reigned in most equity markets, the S&P500 falling 2.6% on disappointing earnings announcements, and European indices down 1-2%. Brent crude oil fell 7% to $39 on the global outlook.
NZD staged a brief rally to above 0.58 at the European open, but is not yet ready for a follow-through. It made its second 0.57 bottom since Friday, and awaits today’s Q3 GDP data.
AUD was well contained in a 0.68 to 0.69 range, not reacting obviously to a China-inspired metals rally. AUD/NZD staked out a larger 1.18 to 1.1950 area.
After EUR’s brief move past 1.40 (option-expiry related), it weakened gradually, and is heading towards 1.38. Some support at 1.39 today will dampen the downward path. JPY has settled around 90 for now, an order at London’s close spiking it to 90.47.
No data from the US.
Japanese exports slide off a cliff in November. Japan exports plunged 13.5%mth in Nov to a –26.7%yr pace; imports fell 11.2%mth to -14.4%yr pace resulting in a trade deficit of ¥223bn.
Eurozone industrial orders for October declined 4.7% (m/m), compared to expectations of -4.0%. September’s figure was also revised downwards to -5.4%. The negative trend here is accelerating, and confirms Eurozone’s continued contraction in the last quarter of the year.
Germany’s GfK consumer confidence remained steady at 2.1 in January, but December was revised down. The reading of -6.3 for “willingness to buy” points to weaker retail sales ahead. November import prices fell 3.4% (m/m) and 1.3% (y/y), mainly due to lower oil prices, and may add to deflation concerns.
Canada’s index of consumer confidence stumbled for the third consecutive month in December, falling 3.3 points to 67.7. There was one bright spot – for the second consecutive month, an increasing percentage of respondents said it was a good time to make a big-ticket purchase. Average weekly earnings rose 0.3% in October. Continued momentum in earnings suggest some resilience on the part of household incomes, although the descent into recession should eventually weigh on wages.
The People’s Bank of China cut its one year deposit and lending rates by 27bp, and also cut its banks’ reserve requirements, in a more moderate move following November’s 108bp cut. The continued easing was justified by annual CPI having fallen from almost 9% to 2.4% in less than a year, and declining production.
Outlook
In a repeat of yesterday’s outlook, the range of 0.57 to 0.58 today is vulnerable to a negative GDP surprise this morning. Given a neutral reading, though, the 0.57 double-bottom completed last night suggests a breakout higher.
