Market Drivers for May 13 2014

Chinese data misses

EUR ZEW deteriorates sharply

Nikkei 1.95% Europe .11%

Oil $100/bbl

Gold $1292/oz.

Europe and Asia:

AUD HPI 1.7% vs. 3.0%

AUD New Home Loans -0.9% vs. -0.1%

CNY Industrial Production 8.7% vs, 8.9%

CNY Fixed Asset 17.3% vs. 17.7%

CNY Retail Sales 11.9% vs. 12.2%

EUR ZEW 33.1 vs. 41.3

North America:

USD Retail Sales 8:30 AM

USD Business Inventories 10:00 AM

Both euro and Aussie came under mild selling pressure on weaker than expected economic data in what was otherwise a relatively uneventful secid trading session of the week. In Europe the ZEW survey of investor sentiment printed at 33.1 versus 41.3 eyed while in Asia the Chinese data deluge all missed its mark.

The ZEW survey provided mixed results with future expectations component falling sharply but the current conditions printing at 62.1 better than the forecast of 60.5. The net takeaway from the report was that Germany continues to perform well, but investors are gravely concerned about the sustainability of that growth given the chaotic geo-political conditions in Ukraine and the elevated level of the exchange rate that is likely to weigh German exports going forward.

No doubt investment managers have already noticed the declining level of German factory orders and Industrial Production and the ZEW reading today simply reflects the fact that investors do not think that the heady pace of growth in Q1 is sustainable. Euro dropped below the 1.3750 level in reaction to the news but found support underneath that area for the time being.

Meanwhile in Asia the monthly Chinese data set of Industrial Production, Retail Sales and Fixed Asset investment all missed their forecast with Retail Sales rising only 11.9% versus 12.2% eyed. The data is showing a slowdown in economic activity across the board but the declines do not appear to be so serious as to prompt further easing action from the PBOC. Still the data took its toll on the Aussie as the unit sunk below the 9350 mark in lackluster Asian and European trade.

Australia also release its new austerity budget today calling for a reduction of 16K civil service jobs and a 2% tax on incomes of 180K or more. The tight fiscal policy is only likely to reinforce RBA’s steadfastly neutral stance and should cap any rally in AUD/USD to the 9500 figure for the time being.

In North America today the focus will be on US Retail Sales with markets anticipating a slightly lower reading of 0.6% from 0.7% the month prior. If the data simply matches or beats slightly to the upside it should prove positive to the dollar alleviating concerns that the US recovery is running out of steam. A healthy consumer spend number would indicate that US economic growth will pick up pace at the year progresses and should nudge the yields on the 10 year benchmark bond off their recent lows.

USD/JPY has already been anticipating this rebound in rates with the pair climbing above the 102.00 level. If the US data today surprises to the upside it could propel the pair through the 102.50 barrier as the day progresses.

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