Better than forecast China data gives risk another leg-up in Asia


MAJOR HEADLINES – PREVIOUS SESSION

  • US Jul. Trade Balance out at -$32.0 bln vs. -$27.3 bln prior and -$27.5 bln prior

  • US Weekly Initial Jobless Claims out at -550k vs. -560k expected and -576k prior

  • US Weekly Continuing Claims out at 6,088k vs. 6,200k expected and 6,247k prior

  • CA Bank of Canada leaves rates unchanged

  • CA Jul. Int’l Merchandise Trade out at –C$1.4 bln vs. +C$0.1 bln expected and flat prior

  • NZ Aug. Food prices out at -0.9% m/m and +0.6% prior

  • JP Q2 Final GDP revised lower to +0.6% q/q, +2.3% y/y vs. +0.9%/+3.7% previously

  • CN Aug. PPI out at -7.9% y/y vs. -7.8% expected and -8.2% prior

  • CN Aug. CPI out at -1.2% y/y vs. -1.3% expected and -1.8% prior

  • CN Aug. Retail Sales out at 15.4% y/y vs. 15.3% expected and 15.2% prior

  • CN Aug. Industrial Production out at 12.3% y/y vs. 11.8% expected and 10.8% prior

  • CN Aug. Fixed asset Investment out at 33.0% vs. 32.7% prior and 32.9% prior

  • CN Aug. New Yuan Loans out at 410.4 bln vs. 320.0 bln expected and 355.9 bln prior

  • JP Aug. Consumer Confidence out at 40.4 vs. 40.2 expected and 39.7 prior


THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

  • GE Wholesale Prices (0600)

  • EU ECB’s Gonzalez to speak (0700)

  • Sweden Q2 GDP (0730)

  • Sweden Unemployment (0800)

  • UK PPI Input/Output (0830)

  • US New Housing Price Index (1230)

  • US Wholesale Inventories (1400)

  • US Univ. of Michigan Confidence (1400)

Market Comments:

Another slippery slope session for the dollar yesterday though once again we failed to make significant headway below recent lows. GBP was the out-performer of the session as short-term speculators, who were positioned for a trimming of the interest paid on bank reserves, scrambled for cover as the bank of England left rates, QE measures and other tolls unchanged.

Data on the whole was not supportive of the greenback. A better weekly jobless claims number , the widening of the US trade gap and the well-received 30-year treasury auction were all viewed as green lights to USD bears.

Nevertheless, a mild retracement into the NY close saw Asia walking in to steady levels, some pairs barely changed for the previous day, and awaited the slew of Chinese data before bursting into activity. The data basically was positive for risk with most releases beating forecasts. The most relevant of the releases saw industrial production up 12.3% (11.8% expected), Fixed Asset Investment up 33.0% (32.7% expected) and new Yuan loans amounting to 410.4 bln Yuan compared to 355.9 bln Yuan last time. Coming on the back of recent Chinese officials’ assurances to keep the stimulus spigots open, markets are now looking for (hoping for) further advances in the China economy. A small fly in the ointment from the later release of Chinese trade data – exports were worse than expected, but imports even more dramatically lower resulting in a larger trade surplus. The fact that the China economy is not yet domestically driven implies that weaker imports in August will translate into even weaker export numbers down the line.

While risk received a boost during the Asian session, stocks generally higher (apart from Nikkei) and the USD sliding some 0.2% on the Dollar Index to a fresh yearly low of 76.69, Asia seemed hesitant to take certain currency pairs past key resistance levels, notably EURUSD at 1.4620, and with the story suggesting that IMF hedging was behind the firmer EUR now being refuted, we may need something significant to pull us higher with short-term speculators likely loaded up. AUD was also hesitant

In article in the UK Telegraph by Ambrose Evans Pritchard grabbed the attention this morning though its impact on GBP was muted as the dollar’s slide dictated direction. The piece highlights a European Commission report that forecasts that Britain’s public debt will explode to 180% of GDP within a decade unless future governments take drastic measures to restore fiscal probity. This projection is more than double that forecast by the UK Treasury. The report also highlights that Ireland is probably in the worst situation with debt projected to reach 200% of GDP. The figures are apparently based on the assumption that emergency fiscal support of the last year is withdrawn in an orderly way by 2011.

The data releases for the rest of the day are quite limited with just German Wholesale prices, Sweden’s Q2 GDP and unemployment for August followed by UK PPI input/output prices the only releases on tap in Europe. The US’ import prices, wholesale inventories and Michigan confidence index round off the week.