China data contains no real surprises but risk generally taken off in Asia


MAJOR HEADLINES – PREVIOUS SESSION

  • US Weekly MBA Mortgage Applications out at -13.7% vs. -1.8% prior

  • JP Sep. Merchandise Trade Balance out at ¥520.6b vs. ¥620.8b expected and revised ¥183.3b prior

  • JP Sep. Trade Exports out at -30.7% y/y vs. -29.7% expected and -36.0% expected

  • JP Sep Trade Imports out at -36.9% y/y vs. -38.0% expected and -41.3% prior

  • China Q3 GDP out at +8.9% y/y vs. +9.0% expected and +7.9% prior

  • China Sep. PPI out at -7.0% y/y vs. -7.4% expected and -7.9% prior

  • China Sep. CPI out at -0.8% y/y, as expected vs. -1.2% prior

  • China Sep. Retail Sales out at +15.5% y/y, as expected, vs. +15.4% prior

  • China Sep. Industrial Production out at +13.9% y/y vs. +13.2% expected and +12.3% prior

  • China Sep. Fixed Asset Investment YTD out at +33.3% y/y vs. +33.1% expected and +33.0% prior

  • JP Aug. All Industry Activity out at +0.9% m/m vs. +0.4% expected and revised +0.8% prior

  • JP Sep. Supermarket Sales out at -2.4% y/y vs. -3.4% prior


THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

  • Swiss Trade balance (0615)

  • Sweden Unemployment (0730)

  • Sweden Riksbank Rate Announcement (0730)

  • EU ECB’s Weber to speak (0730)

  • EU Euro-zone Current Acct Balance (0800)

  • UK Retail Sales (0830)

  • UK BOE Lending Trends Report (0830)

  • HK CPI ((0830)

  • EU Euro-zone Govt. Debt/GDP Ratio (0900)

  • CA Retail Sales (1230)

  • US Initial Jobless Claims (1230)

  • US Leading Indicators (1400)

  • US House Price Index (1400)

  • US Treasury’s Allison to testify (1400)

  • CA BOC Monetary Policy Report (1430)

  • US Fed’s Rosengren to speak (1430)

  • US Treasury’s Barr to testify (1500)

  • UK BOE’s Tucker to speak (1530)

  • US Fed’s Lockhart to speak (1600)

Market Comments:

It was a bad day at the office for the greenback yesterday as the Dollar Index slid through the 75.0 mark to touch its lowest level since August 2008. It was interesting to note that a late sell-off in equity markets on Wall Street was not able to provide a sustainable lift to the beleaguered dollar and the index was left anchored to the 75.0 mark during the Asian session.

The dollar’s slide gave EURUSD enough impetus to break above the psychological 1.50 mark and currently seems quite comfortable above the level though gains past 1.5050 are seemingly a slow process. Among the more significant gainers against the dollar was GBP, which appears to be enjoying a bit of a hiatus from being the poor relation in currency markets. The strong up-move was promoted by a number of more-hawkish asides from BOE Governor Mervyn King, minutes of the last MPC meeting that showed members unanimously voting to keep the asset purchase plan unchanged at its last meeting, and reported large corporate flows linked to dividend payments. Not forgetting that the markets have been overly positioned short of the pound recently, both against the USD and EUR, and stops triggers looked brutal.

Asia walked in with all eyes on the China data that was scheduled for release. In the end, most indicators were in line with forecasts though the GDP numbers were a marginal disappointment. Q3 growth came in at 8.9% y/y versus a 9.0% forecast (though whispers had suggested it could come in above 9.1%). This proved to be the only disappointment though, with CPI and retail sales bang on forecast (-0.8% y/y and +15.5% y/y respectively) but it was the industrial production data that performed better, coming in at +13.9% y/y vs. +13.2% expected. There had been rumours circulating in markets yesterday that the data had been leaked and would be better than expected, and this proved to be true, so it is likely that this had already been priced into markets. The reaction post-data would seem to concur with this as the USD managed a slight rebound, pressing most major pairs some 30-40 points lower. The Index was up 0.3% by the Asian lunch.

Prior to the data release, a front page story in the FT caught the market’s attention as it headline that a top Chinese banker had warned on potential asset bubbles and was urging an immediate tightening in monetary policy, but the impact on markets was negligible. Indeed, after the data a National Bureau of Statistics spokesman assured that there would be no abrupt shift in policy with the *% growth target for the full year “a certainty”.

Other data releases in Asia centred around Japan, with trade data for September the major highlight. Exports were down 30.7% y/y and, while above the lows seen in February, indicate how difficult and fragile the global recovery has been. In the breakdown, exports to the US were down 34.1% y/y (similar to last month) while those to the Euro-zone showed a mild improvement (-38.6% y/y versus -45.9% last) and to China a greater improvement to -13.8% y/y versus -27.6% in August.

The Asian session was generally a “risk-off” session with the weak close on Wall St cited as an instigating factor. Add to this the possible disappointment in the China data and some suspicions that the liquidation of the Galleon funds may have a greater market impact than first thought. Nevertheless, EURUSD gave up the 1.50 handle but was sitting just above next support levels at press time.

Looking ahead to today’s session, UK data focuses on retail sales and the BOE’s lending report while the Euro-zone sees August’s current account balance. The North American session is busier with weekly initial jobless claims, leading indicators and house price index. Canada’s retail sales data will precede the Bank of Canada’s monetary policy report. Another raft of Fed speakers tonigh as well.