China's growth numbers largely in line - but is quality more interesting than quantity? AUD is the G-10 China proxy.
MAJOR HEADLINES – PREVIOUS SESSION
- Japan Sep. Adjusted Merchandise Trade Balance out at ¥58.6B vs. ¥375B expected
- Japan Sep. Merchandise Trade Exports fell -30.7% YoY vs. -29.7% expected and -36.0% in Aug.
- China Q3 GDP out at 8.0% YoY vs. 9.0% expected and 7.9% in Q2
- China Sep. Producer Price Index out at -10.1% YoY vs. -10.7% expected and -11.4% in Aug.
- China Sep. CPI out at -0.8% YoY as expected and vs. -1.2% in Aug.
- China Sep. Retail Sales rose 15.5% YoY as expected and vs. 15.4% in Aug.
- China Sep. Industrial Production rose 13.9% YoY vs. 13.2% expected and 12.3% in Aug.
- Japan Sep. Supermarket Sales fell -2.4% YoY vs. -3.4% in Aug.
- Switzerland Sep. Trade Balance was 1.92B vs. 1.72B in Aug.
- Sweden Sep. Unemployment rate out at 8.3% as expected and vs. 8.0% in Aug.
- Sweden Riksbank left rates unchanged at 0.25% as expected
- EuroZone Aug. Current Account out at-1.3B vs. 3.7B in Jul.
- UK Sep. Retail Sales out at 0.0% MoM vs. +0.5% expected
- Canada Aug. Retail Sales out at 0.8% MoM and 0.5% less Autos, vs. +0.4%/+0.6% expected, respectively
- US Weekly Initial Jobless Claims out at 531k vs. 515k expected and 520k last week
- US Weekly Continuing Claims out at 5923k vs. 5970k expected and 6021k last week
THEMES TO WATCH – UPCOMING SESSION
(All times GMT)
- US Sep. Leading Indicators (1400)
- US Aug. House Price Index (1400)
- Canada Bank of Canada Monetary Policy Report (1430)
- US Fed's Rosengren to Speak (1430)
- UK Bank of England's Tucker to Speak (1530)
- US Fed's Dudley to Speak (1730)
- US Fed's Evans to Speak (2000)
Market Comments:
An ugly late afternoon sell-off in US equities tilted the risk appetite gauge back into neutral territory after the earlier rally, and the latest move weaker in the USD consolidated, with EURUSD criss-crossing 1.5000 and AUDUSD backing well off the new highs for the cycle posted above 0.9300 yesterday. The weak USD move is so stretched at this point that any further progress lower in the USD, if it occurs, looks likely to be a tough grind. Speculative positioning has long been extremely crowded.
Overnight, Chinese data was largely in-line, but questions abound about the quality of that growth and whether too much is a result of the government stimulus program as China tries to transition from its old export-led ways. An excellent Op-ed piece in the FT out late yesterday "China's Baozi economy" discusses that very issue and frets the trajectory of the Chinese economy. There is also excellent discussion of this article on ftalphaville. Looking at Japan's export figures out overnight, with year-on-year merchandise exports still off some -30%, one can imagine that it is tough to find a productive place to put capital to work in China's former production/export-led economy.
Riksbank dashes market expectations
The Riksbank surprised the market as the bank promised to keep rates at the current very low level until this time next year, certainly a surprise for the market that, judging from interest rate expectations, has priced in a good deal of tightening between now and then. Such dovish talk is likely to put a damper on the krona for some time, and volatility in EURSEK has already shown signs of declining. Going forward, the krona is likely to act as a weak proxy for the global recovery due to the huge importance of exports for its economy - with a special sensitivity to developments in Eastern Europe. The latter theme, and especially the still dire situation in Latvia, halted SEK strength over the last few weeks, but bad news there is largely already priced in, it would seem. Despite the dovish talk from the Riksbank, EURSEK looks relatively expensive given market conditions and historic valuations for the krona.
The Riksbank surprised the market as the bank promised to keep rates at the current very low level until this time next year, certainly a surprise for the market that, judging from interest rate expectations, has priced in a good deal of tightening between now and then. Such dovish talk is likely to put a damper on the krona for some time, and volatility in EURSEK has already shown signs of declining. Going forward, the krona is likely to act as a weak proxy for the global recovery due to the huge importance of exports for its economy - with a special sensitivity to developments in Eastern Europe. The latter theme, and especially the still dire situation in Latvia, halted SEK strength over the last few weeks, but bad news there is largely already priced in, it would seem. Despite the dovish talk from the Riksbank, EURSEK looks relatively expensive given market conditions and historic valuations for the krona.
US Jobless Claims spoil the trend
The trend to lower weekly jobless claim was spoiled today with a weekly reading 2% higher than last week's and an upward revision of the previous week's number as well. The US economy is still seeing more workers file for claims than the same time last year, which was already well into the recession. The weekly claims numbers need to drop back well below 400k before we are likely to see the employment situation improving and wages rising again - a key element in any real recovery of confidence and spending.
The trend to lower weekly jobless claim was spoiled today with a weekly reading 2% higher than last week's and an upward revision of the previous week's number as well. The US economy is still seeing more workers file for claims than the same time last year, which was already well into the recession. The weekly claims numbers need to drop back well below 400k before we are likely to see the employment situation improving and wages rising again - a key element in any real recovery of confidence and spending.
Looking ahead
We have a very sparse calendar until tomorrow's German IFO and UK GDP data, as well as the preliminary readings on EuroZone October Manufacturing and Services PMI's. The economic calendar finishes off the week with US Existing Home Sales and Bernanke is also out speaking tomorrow on regulatory issues. Today, the focus is squarely on equities, which finally appear to be rolling over into correction mode (though this rally has been the cat with nine lives) much like AUDUSD (see below) and perhaps even more so on long bonds, were US 10-year yields are zeroing in on the round 3.50% resistance. Their behavior will be key for whether the JPY sell-off will continue here. The USDJPY rally was rejected at new highs today, but there may not be a floor here for the JPY is bonds continue to sell-off. We may see announcement of next week's US treasury auction sizes today.
We have a very sparse calendar until tomorrow's German IFO and UK GDP data, as well as the preliminary readings on EuroZone October Manufacturing and Services PMI's. The economic calendar finishes off the week with US Existing Home Sales and Bernanke is also out speaking tomorrow on regulatory issues. Today, the focus is squarely on equities, which finally appear to be rolling over into correction mode (though this rally has been the cat with nine lives) much like AUDUSD (see below) and perhaps even more so on long bonds, were US 10-year yields are zeroing in on the round 3.50% resistance. Their behavior will be key for whether the JPY sell-off will continue here. The USDJPY rally was rejected at new highs today, but there may not be a floor here for the JPY is bonds continue to sell-off. We may see announcement of next week's US treasury auction sizes today.
Chart: AUDUSD
AUDUSD has largely been a one-way ticket since the beginning of September. We recently highlighted the turning stochastics level suggesting that the pair's rally is moving momentum. The lack of consolidation and abundant signs of speculative fervor suggest that a consolidation, even if not a trend-destroyer, risks being rather volatility and sizeable the longer this kind of action continues. Note that the last few days have seen each successive new high retracing rather deeply the next day, a possible sign of an imminent correction - perhaps to the 0.8900 area if a reasonable correction in equities sets in here. The AUD rally could pause a bit here as well if the market decides to take a good hard look at the quality of Chinese growth.
AUDUSD has largely been a one-way ticket since the beginning of September. We recently highlighted the turning stochastics level suggesting that the pair's rally is moving momentum. The lack of consolidation and abundant signs of speculative fervor suggest that a consolidation, even if not a trend-destroyer, risks being rather volatility and sizeable the longer this kind of action continues. Note that the last few days have seen each successive new high retracing rather deeply the next day, a possible sign of an imminent correction - perhaps to the 0.8900 area if a reasonable correction in equities sets in here. The AUD rally could pause a bit here as well if the market decides to take a good hard look at the quality of Chinese growth.
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