Weak risk appetite on Friday in the aftermath of China’s softer trade data led to the usual rumours/chatter of a weekend China rate cut late in the session. They came to nothing, so Asia kicked off the session with another weakish start.
Indeed, the lack of a cut was compounded by a commentary in China’s Financial News suggesting the central bank is reticent about allowing further cuts in the reserve requirement ratio, as this might stoke inflation expectations. It said current reverse repo operations are sufficient to satisfy immediate liquidity requirements.
However, most equity markets across the region were marginally in the black by lunchtime (apart from the Shanghai Composite) and this forced an improvement in risk appetite and the corresponding rebound in risk currencies.
The only data point for Asia today was the release of Japan’s provisional Q2 GDP numbers. Growing just 0.3 percent q/q, the data was a disappointment to market expectations of 0.6% growth and marked a significant slowdown from Q1’s upwardly-revised 1.3 percent. Drilling down into the headline numbers, domestic demand kept the economy going with a 0.4 percent contribution while net external demand subtracted 0.1 percent. Capital expenditure rebounded by a strong 1.5 percent after a 2.1 percent decline in the previous quarter, but personal consumption was a lowly +0.1 percent following 1.2 percent in Q1, as government subsidies for such things as green/efficient cars was scaled back. The JPY was unaffected by the data, with USDJPY trading a tight 15 point range.
In weekend reports, latest data from the IMM on open EUR positions (snapshot as per last Tuesday) showed EUR net shorts reduced to their lowest levels since May, marking the fourth straight week of reductions in such positions. This is likely correlated with the EURUSD’s rebound from cycle lows on July 24.
The EUR did feel some pressure on Friday, as weak Chinese trade data continued to promote the “risk-off” mood. Euro-focused rumours and headlines (Dexia needing recapitalization, Fitch commenting that a Spanish request for aid only a matter of when, not if) all added to the pressure but key support at 1.2240 vs. the US dollar held intact.
In a slower NY session, the CAD was most active, with a surprise fall in the net change in employment of 30k (+6.0k expected) and a blip higher in the unemployment rate to 7.3 percent putting some kneejerk pressure on the Loonie. On the US front, import prices were a tame -0.6 percent m/m, -3.2 percent y/y. Meanwhile Wall St bucked the trend of weaker equities across Europe with its sixth day and fifth week of gains, with the DJIA rallying 0.32 percent, S&P 0.22 percent and the Nasdaq 0.07 percent.
Data Highlights
CA Jul Net Employment Change out at -30.4k vs. +6.0k expected and +7.3k prior
CA Jul. Unemployment Rate out at 7.3% vs. 7.2% expected and 7.2% prior
NZ Jul. Food Prices out at +0.2% m/m vs. 1.4% prior
JP Q2 Provisional GDP out at +0.3% q/q vs. 0.6% expected and revised +1.3% prior
JP Q2 Provisional GDP Annualized out at +1.4% vs. 2.3% expected and revised 5.5% prior
Upcoming Economic Calendar Highlights
(All Times GMT)
GE Wholesale Prices (0600)
NO Retail Sales (0800)
Andrew Robinson,
SAXO BANK