Reaction in Asia was muted; Is the risk space getting overcrowded?


MAJOR HEADLINES – PREVIOUS SESSION

  • US Oct. NFIB Small Business optimism out at 89.1 vs. 88.8 prior

  • US Nov. IBD/TIPP Economic Optimism out at 47.9 vs. 49.0 expected and 48.7 prior

  • NZ Oct. Food Prices out at -1.5% m/m vs. -0.7% prior

  • US Weekly ABC Consumer Confidence out at -46 vs. -49 prior

  • AU Nov. Westpac Consumer Confidence out at -2.5% vs. +1.7% prior

  • JP Sep. Machine Orders out at +10.5% m/m, -22% y/y vs. +4.1%/-26.2% expected and +0.5%/-26.5% prior resp.

  • China Oct. PPI out at -5.8% y/y vs. -5.2% expected and -7.0% prior

  • China Oct. CPI out at -0.5% y/y vs. -0.4% expected and -0.8% prior

  • China Oct. Retail Sales out at +16.2% y/y vs. +15.7% expected and +15.5% prior

  • China Oct. IP out at +16.1% y/y vs. +15.5% expected and +13.9% prior

  • China Oct. Fixed Asset Investment out at 33.1% vs. 33.5% expected and 33.3% prior

  • China Oct. New Yuan Loans out at 253.0b vs. 37.0b expected and 516.7b prior

  • China Oct. Exports out at -13.8% y/y vs. -13.0% expected and -15.2% prior

  • China Oct. Imports out at -6.4% y/y vs. -1.0% expected and -3.5% prior


THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

  • Sweden Unemployment (0900)

  • UK Claimant Count Change (0930)

  • UK Avg. Earnings (0930)

  • UK ILO Unemployment Rate (0930)

  • UK Manuf. Wage Costs (0930)

  • UK BOE Qtrly Inflation Report (1030)

  • EU ECB’s Nowotny to speak (1700)

  • EU ECB’s Weber to speak (1700)

  • EU ECB’s Wellink to speak (1800)

Market Comments:

The lack of data inputs in the US session yesterday kept currencies within recent ranges, pivoting around familiar levels. Indeed, when the Asian session started this morning, levels were strangely familiar to the previous day.

GBP managed a recovery from the Fitch-induced meltdown, despite further negative inputs from a weak trade balance, and traded back above 1.67. Market eyes have now shifted to the Bank of England’s Quarterly Inflation Report and its signals on quantitative easing and policy. EUR found it hard-going above 1.50 again with a slightly disappointing ZEW survey dampening momentum.

Fed speakers had nothing new to offer. Janet Yellen is looking for a u-shaped, not a v-shaped recovery with some risks to the rebound. As a result there will be no Fed tightening in the next “several months”. In contrast, Fed’s Lacker thought the US was in “pretty good shape” with a reasonably good recovery underway and consumer spending having hit a bottom. However, commercial real estate would continue to be a drag and it would be too early to say when the Fed could raise rates. The interest rate outlook featured in comments by Fed’s Fisher with the Fed’s pledge to keep rates low for an “extended period” potentially fueling carry trades.
However, he expected the FOMC to craft an “appropriate remedy” if it became a disorderly influence (though no hint of what that remedy might be).

Asia had few other clues to get going this morning and RBNZ Governor Bollard’s attempts to talk down the currency did have an initial impact, though somewhat limited. He commented that the high NZD was unsustainable and the currency was overvalued relative to fundamentals (but if you look at the interest differential one could argue that the NZD’s firmness can be accounted for!). So, it was all eyes on the China data for the next inputs.

The data for October was generally better than expected with retails sales surging 16.2% y/y, industrial production up 16.1% y/y and the inflation indicators, PPI and CPI, both indicating a still benign environment.
Marginal disappointments were seen in Fixed Asset Investment (up 33.1% YTD instead of +33.5% expected) and New Yuan Loans were only a dismal Yuan 253.0 bln versus Yuan 370 bln expected and Yuan 516.7 bln last time.
However, it should be noted that a weak number had been heavily rumoured yesterday, and talked about in local press given the lending directives issued by the authorities. Exports were also a tad below forecast at -13.8% versus -13.0% while imports also slowed to -6.4% y/y versus -3.5% last. Overall, the set of data was viewed as moderately positive with the inputs for the global rebound still in place. Market reaction was a bit subdued however with equities unchanged, bond markets a touch firmer, and, while risk currencies attempted a brief rally this soon ran out of steam. Again the retracement was nothing to shout about either and we reverted back into ranges.

With delegates gradually arriving in Singapore for the APEC summit this weekend, the flow of market-related comments is increasing. World Bank chief Robert Zoellick hit the wires saying the dollar’s status as a reserve currency is secure for “some time” as gold remains less-transferable as a reserve currency. However he noted that once the Yuan becomes more internationalized over the next 10-15 years, it could become a reserve alternative, as could the EUR.

The Veterans Day holiday in the US (equity markets open but bond markets closed and FX market activity expected to be very subdued) ensures a blank data slate for the US session. The European session sees Sweden unemployment, UK unemployment and average earnings. As mentioned above the Bank of England’s quarterly inflation report has provided fireworks for GBP the past two times and this is likely to be in prospect again today. Be careful.