China's economic data improves, Fed jitters
|Forex News and Events
China’s economy bounces back (by Arnaud Masset)
The Chinese economy started the year on the back foot as the both manufacturing and services sectors showed some signs of sever slowdown, raising concerns about the ability of the world’s second largest economy to switch toward a domestic generated growth from an export driven one. Nevertheless, since the second quarter, the economy has been sending some positive signals, suggesting that the downside adjustment is underway. Industrial output grew 6.3%y/y in August, beating median forecast of 6.2% and above July’s reading of 6.0%. Retail sales also beat expectations as it expanded 10.6%y/y versus 10.2% median forecast and previous reading. Finally, fixed asset investment surged 8.1% since the beginning of the year, while foreign direct investment jumped 5.7% in August compared to 4.5% consensus.
All in all, the last batch of economic data suggest that the worst is behind us; however there are still serious issue to be addressed in the long-term, especially the massive overcapacity in many industries, the continued slowdown of the export sector and the weakness of domestic consumption. An accommodative policy stance, both on the monetary and fiscal side, is still more than relevant in light of the upcoming challenges.
Risk rallies on (by Peter Rosenstreich)
Lots of nervous chatter flooded the wires as Fridays sharp correction had many predicating the end of the 10 year Bull Run. We have to admit that Fed Rosengren unexpectedly hawkish comments and resulting surge in volatility and collapse of stock prices has us thinking that the bubble had finally popped. However, cooler analyst heads prevailed as the realization that no structural change had transpired. Without such a shift our dominate thesis that ultra-lose monetary policy will unconditionally support risk taking remains unchanged. Our view was quickly reinforced by Fed Brainards dovish comments and recovery in global equity prices. On a side note, thank god for the Fed communication blackout now in effect so that we do not have to suffer though rogues waves of volatility. Moving forward our base scenario is that US economic data and global environment remains too uncertain for further a September rate hike. However, should the 20% probably of a 25bp hike prove to be correct, this also will have a limited effect in lowering risk appetite as it is likely the Fed path will flatten (one and done till next year cycle continues). We remain confidently constructive in EM currencies, Gold and US equities and see current selling as an opportunity to reload shorts. We also anticipate the rally US yields is unsustainable as the trillion currently investing in negative yield paper will thankfully flood back into the US on any rate rise. Looking forward we see only the US elections as a potential catalyst to bring about an end to the good times.
Hawkish one day, dovish the next (by Yann Quelenn)
The US equities market declined sharply on Friday on the back of Fed Rosengren’s very hawkish comments. We believe this move was a mistake. In our view, the central bank does not have the ability to raise rates as its massive debt holds it back. Its credibility will continue to deteriorate as long as a rate hike normalization period is not delivered. Last December's small hike was merely an attempt to smooth over the cracks.
Rosengren's hawkish declarations triggered a significant equity sell-off. Yesterday, Fed’s Brainard, Lockhart and Kashkari all played the role of firemen, repeating over and over that patience is the key word and that the job market is not yet strong enough. Ordinarily, a 4.9% unemployment rate would be looked on very favourably, but with the absence of wage growth, the figures contradict each other. This is why we believe that the jobs market is in fact largely overestimated.
Unsurprisingly, equity markets went up yesterday amid the comments that there is “no hurry” to raise interest rates. The free money tap continues flow with no end in sight at present and markets are now pricing a September rate hike at 22%. Fed communication is mixed, contributing to market volatility while it should be working to ensure price stability. This sounds like another failure from the American Central Bank.
Crude Oil - Volatility Lowers.
| Today's Key Issues | Country/GMT |
|---|---|
| Aug CPI Core MoM, last -0,90%, rev 0,30% | EUR/07:00 |
| Aug CPI Core YoY, exp 0,70%, last 0,70%, rev 0,30% | EUR/07:00 |
| Aug F CPI EU Harmonised MoM, exp 0,00%, last 0,00% | EUR/07:00 |
| Aug F CPI EU Harmonised YoY, exp -0,30%, last -0,30% | EUR/07:00 |
| Aug F CPI MoM, exp 0,10%, last 0,10% | EUR/07:00 |
| Aug F CPI YoY, exp -0,10%, last -0,10% | EUR/07:00 |
| Aug Producer & Import Prices MoM, exp -0,20%, last -0,10% | CHF/07:15 |
| Aug Producer & Import Prices YoY, exp -0,30%, last -0,80% | CHF/07:15 |
| Aug CPI MoM, exp 0,00%, last 0,10% | SEK/07:30 |
| Aug CPI YoY, exp 1,20%, last 1,10% | SEK/07:30 |
| Aug CPI CPIF MoM, exp -0,10%, last 0,10% | SEK/07:30 |
| Aug CPI CPIF YoY, exp 1,50%, last 1,40% | SEK/07:30 |
| Aug CPI Level, exp 316,61, last 316,73 | SEK/07:30 |
| Jul Industrial Production MoM, exp 0,20%, last -0,40% | EUR/08:00 |
| Jul Industrial Production WDA YoY, exp -0,90%, last -1,00% | EUR/08:00 |
| Jul Industrial Production NSA YoY, last -1,00% | EUR/08:00 |
| 2Q Current Account as a % GDP, exp -3,00%, last -5,00% | ZAR/08:00 |
| 2Q Current Account Balance, exp -129b, last -211b | ZAR/08:00 |
| Aug Region Survey: Output Past 3M, last 0,16 | NOK/08:00 |
| Aug Region Survey: Output Next 6M, last 0,28 | NOK/08:00 |
| sept..07 FIPE CPI - Weekly, exp 0,16%, last -0,03% | BRL/08:00 |
| Aug CPI MoM, exp 0,40%, last -0,10% | GBP/08:30 |
| Aug CPI YoY, exp 0,70%, last 0,60% | GBP/08:30 |
| Aug CPI Core YoY, exp 1,40%, last 1,30% | GBP/08:30 |
| Aug Retail Price Index, exp 264,3, last 263,4 | GBP/08:30 |
| Aug RPI MoM, exp 0,40%, last 0,10% | GBP/08:30 |
| Aug RPI YoY, exp 1,80%, last 1,90% | GBP/08:30 |
| Aug RPI Ex Mort Int.Payments (YoY), exp 1,90%, last 1,90% | GBP/08:30 |
| Aug PPI Input NSA MoM, exp 0,60%, last 3,30% | GBP/08:30 |
| Aug PPI Input NSA YoY, exp 8,20%, last 4,30% | GBP/08:30 |
| Aug PPI Output NSA MoM, exp 0,30%, last 0,30% | GBP/08:30 |
| Aug PPI Output NSA YoY, exp 1,00%, last 0,30% | GBP/08:30 |
| Aug PPI Output Core NSA MoM, exp 0,20%, last 0,40% | GBP/08:30 |
| Aug PPI Output Core NSA YoY, exp 1,30%, last 1,00% | GBP/08:30 |
| Jul House Price Index YoY, last 8,70% | GBP/08:30 |
| 2Q Employment QoQ, last 0,30% | EUR/09:00 |
| 2Q Employment YoY, last 1,40% | EUR/09:00 |
| Sep ZEW Survey Current Situation, exp 56, last 57,6 | EUR/09:00 |
| Sep ZEW Survey Expectations, exp 2,5, last 0,5 | EUR/09:00 |
| Sep ZEW Survey Expectations, last 4,6 | EUR/09:00 |
| ECB's Draghi Receives | EUR/09:00 |
| BOE Indexed Long-Term Repo Operation Results | GBP/09:40 |
| Aug NFIB Small Business Optimism, exp 94,8, last 94,6 | USD/10:00 |
| ECB's Nowotny, BIS's Caruana Speak at OeNB/BIS Conference | EUR/12:00 |
| Jul Retail Sales MoM, exp -0,20%, last 0,10% | BRL/12:00 |
| Jul Retail Sales YoY, exp -5,00%, last -5,30% | BRL/12:00 |
| Jul Retail Sales Broad MoM, exp 0,80%, last -0,20% | BRL/12:00 |
| Jul Retail Sales Broad YoY, exp -8,20%, last -8,40% | BRL/12:00 |
| Riksbank's Skingsley Speaks at OeNB/BIS Conference | SEK/12:15 |
| Sweden's Riksbank Deputy Governor Skingsley Speaks | SEK/12:30 |
| Bank of England Bond-Buying Operation Results | GBP/13:50 |
| Bank of Argentina's Sturzenegger, PBOC's Yi Speak in Vienna | ARS/14:15 |
| Aug Monthly Budget Statement, exp -$107.0b, last -$64.4b | USD/18:00 |
| Lautenschläger Speaks in Strasbourg | EUR/18:00 |
| Aug REINZ House Sales YoY, last -10,10% | NZD/21:30 |
| Aug New Yuan Loans CNY, exp 750.0b, last 463.6b | CNY/22:00 |
| Aug Aggregate Financing CNY, exp 900.0b, last 487.9b | CNY/22:00 |
| Aug Money Supply M0 YoY, exp 7,30%, last 7,20% | CNY/22:00 |
| Aug Money Supply M1 YoY, exp 24,00%, last 25,40% | CNY/22:00 |
| Aug Money Supply M2 YoY, exp 10,50%, last 10,20% | CNY/22:00 |
| Jul Federal Debt Total, last 2959b | BRL/22:00 |
| 2Q BoP Current Account Balance, exp $2.65b, last -$0.30b | INR/22:00 |
| Aug Trade Balance, exp -$7000.0m, last -$7761.4m | INR/22:00 |
| Aug Imports YoY, last -19,00% | INR/22:00 |
| Aug Exports YoY, last -6,80% | INR/22:00 |
| OeNB/BIS conference on central banking in Vienna | USD/22:00 |
The Risk Today
Yann Quelenn
EUR/USD is trading mixed since the recent increase from hourly support given at 1.1123 (31/08/2016 low). Key resistance is given at 1.1352 (23/08/2016 high) then 1.1428 (23/06/2016 high). Strong support can be found at 1.1046 (05/08/2016 low). In the longer term, the technical structure favours a very long-term bearish bias as long as resistance at 1.1714 (24/08/2015 high) holds. The pair is trading in range since the start of 2015. Strong support is given at 1.0458 (16/03/2015 low). However, the current technical structure since last December implies a gradual increase.
GBP/USD is moving higher within uptrend channel. Hourly resistance is given at 1.3445 (06/09/2016 high). Key resistance is given at 1.3534 (29/06/2016 high). Hourly support is given at 1.3236 (12/09/2016 low). Expected to further increase. The long-term technical pattern is even more negative since the Brexit vote has paved the way for further decline. Long-term support given at 1.0520 (01/03/85) represents a decent target. Long-term resistance is given at 1.5018 (24/06/2015) and would indicate a long-term reversal in the negative trend. Yet, it is very unlikely at the moment.
USD/JPY is edging lower. Strong resistance can be found at 104.32 (02/09/2016 high). Hourly support is given at 101.21 (07/09/2016 low). A key support lies at 99.02 (24/06/2016 low). We favour a further bearish bias. We favour a long-term bearish bias. Support is now given at 96.57 (10/08/2013 low). A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems absolutely unlikely. Expected to decline further support at 93.79 (13/06/2013 low).
USD/CHF's medium term momentum is clearly mixed. There are periods of strong and low volatility and the pair seems without direction. Support at 0.9739 (02/09/2016 low) has been broken. Hourly resistance is given at 0.9885 (01/09/2016 high). Next resistance lies at 0.9956 (30/05/2016 high). Expected to further weaken. In the long-term, the pair is still trading in range since 2011 despite some turmoil when the SNB unpegged the CHF. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours nonetheless a long term bullish bias since the unpeg in January 2015.
| EURUSD | GBPUSD | USDCHF | USDJPY |
| 1.1616 | 1.3981 | 1.0093 | 107.9 |
| 1.1479 | 1.3534 | 0.9956 | 105.63 |
| 1.1428 | 1.3481 | 0.9885 | 104.32 |
| 1.123 | 1.3293 | 0.9728 | 101.89 |
| 1.1046 | 1.3024 | 0.9522 | 99.02 |
| 1.0913 | 1.2851 | 0.9444 | 96.57 |
| 1.0822 | 1.2798 | 0.9259 | 93.79 |
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