Asia Pacific Sets the Tone
- Data and Innuendo Factor into Market's Risk Appetite
- A Tale of Two Economies in Oz
- USDCAD Remains Anchored to 1.01
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Data and Innuendo Factor into Market's Risk Appetite
Rumors continue to swirl around trading desks the world over that the Chinese are getting set to hike interest rates and possibly revalue the CNY slightly higher over the weekend. Earlier in the week, the decision was made to move up a series of key data releases to Saturday as opposed to the original schedule that would have made the figures available this coming Sunday night. In addition, there have been anecdotal reports that some of China's major banking institutions have placed a temporary moratorium on issuing mortgages ahead of the weekend, leading many market participants to the conclusion that the Peoples Bank of China will be moving on interest rates, a move that would in no doubt place additional upward pressure on the local currency if it wasn't officially revalued slightly higher at the same time. While the rumors floating around trading desks are certainly just that, rumors, one thing we've learned with respect to the Chinese is that there can actually be a small fire emerging when we begin to see smoke. Historically, the Chinese have often surprised the markets with significant announcements such as these but it does seem as though the PBOC is moving to a communication stance and level of transparency that more closely resembles that of the rest of the developed world. While Chinese policy makers will likely always want to be viewed as fiercely independent, there is no doubt in the fact that it can be advantageous to not surprise markets -- uncertainty is generally not viewed as a positive in financial circles.
The rumors of a potential rate increase from the PBOC had a negative effect on risk appetite at the beginning of the Asian session as traders pulled out of risky positions given the fact that any inclination on the part of the Chinese to slow their economy would have a compounding effect for the rest of the world. Simply put, as the world's leading engine for economic growth and near solitary bright light, a sneeze in China would likely bring about a cold in the rest of world. Risk appetite was however somewhat bolstered in the latter half of the session by much better than expected export growth in China in addition to a Japanese Q3 GDP reading, which registered a rather upbeat 4.5% growth on an annualized basis against expectations of 4.1%. For an economy that has been mired in a generational period of stagnating growth, a GDP figure north of four percent has to undoubtedly be viewed as a significantly positive result. Also on the favorable side of the ledger was the release of an Australian jobs report that surprised to the upside as well with the Aussies posting 54.6K thousand jobs last month versus the market's consensus estimate of only 20K. The increase in payrolls slashed the unemployment rate in Oz to 5.2%, which would make the average Western policy maker drool with envy.
Elsewhere, Fitch Ratings downgraded Ireland (maybe a bit late to be considered relevant) and the pound traded with an offered tone following the Bank of England's decision to stand pat on interest rates and hold the line on their stimulus program of purchasing gilts (the UK equivalent to Treasuries). Overall, the US dollar index is trading heavy to start the day as equities, APAC currencies, and commodities move higher on the session.
A Tale of Two Economies in Oz
Today's latest employment report Down Under has again focused the world's attention on Australia and its burgeoning economy that is being held up as an example for the developed world. With low unemployment, buoyant GDP growth and interest rates that appear to once again be headed higher to fend off domestic inflation, the Aussie economy does appear to be well positioned overall. However, the headline details belie the fact that Australia is really a tale of two economies with the resource sector centered in the state of Western Australia experiencing booming growth much akin to what Canadians might only associate with that of Fort McMurray, for the better part of the past decade while the more populous East and traditional base of economic and political power continues to struggle just the same as much of the rest of the developed world. The reason for this divergence of economic fortunes of course is China, which is gorging itself on the resources riches of the geographically proximate nation of Australia and at the same time is fueling its rather gravity defying overall growth. It will then be interesting to watch how the market reacts in relation to its appetite for risk specific to Oz should the Chinese begin to actively attempt to cool their economy.
USDCAD Remains Anchored to 1.01
Despite some rather significant volatility overseas in the Asian and European trading sessions, USDCAD remains anchored to the 1.01 price figure again today. US initial unemployment claims came in this morning slightly better than expected with a 421K result while Canada's New Home Price Index disappointed by 0.1%. The market is still awaiting the release of US Wholesale Inventory figures later this morning but with the absence of any top tier economic data releases on this side of the pond, USDCAD is likely to continue to take its direction from the broader market's overall appetite for risk with the caveat that there is little likelihood of seeing a material break away from the 1.01 price level without a significant domestic prompt from one of the two nations.
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