Shanghai Sinks and USDJPY Does Too – Will NFPs Reverse the Move?

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Market Drivers March 8, 2019
Chinese equities drop 4%
All eyes on NFP
Nikkei-2.01% Dax -0.60%
Oil $56/bbl
Gold $1292oz.

Europe and Asia:
CNY Trade Balance 34B vs. 228B

North America:
USD NFP 8:30
CAD Employment 8:30

Sinking Chinese equities weighed heavy on risk off flows in Asian and European trade today taking USDJPY below the 111.00 figure by morning London dealing.

The Shanghai Index sank by more than -4% in its worst performance since October of last year on fears that the Chinese government wanted to slow down the current rally and very weak Chinese trade data. Chinese trade balance missed its mark very badly printing at 34B yuan vs. 228B eyed as exports slumped by more than -20%. Part of the drop may have been due to the seasonal adjustment of the Chinese New Year, but the decline was so large that it clearly shows a lack of demand and may bode badly for Chinese growth this year.

The steep fall in Chinese equities dragged USDJPY to a low of 110.95 in essentially one way trade throughout the night. The market will now turn its focus to the US Non-Farm Payrolls due at 13:30 GMT. The market is looking for a much more modest gain of about 170K vs. 304K the month prior, but as always the focus will be on wages. According to our colleague Kathy Lien, “According to Fed’s Beige Book, a number of districts reported a tight labor market and notable worker shortages. This leads us to believe that wage growth will pick up in February.”

If the wage shows a rise of 0.3% or better which would put the annual gains at 3.3% the market is likely to rally USDJPY on the assumption that Fed may feel confident enough to return to normalization before the year-end. However, any weak print of 0.1% or less will only confirm the bears’ argument that US economy is growing, but no one is making money. Weak wage gains will almost certainly keep the Fed on pause and put pressure on USDJPY pair.

In addition to the microeconomic data, the market is likely to react to negative macro news as well. There are reports that the Chinese may back away from the current trade negotiations and may postpone a planned Trump-Xi summit at the end of March. That could put a dent in US stocks which are already lower in overnight trade due to wobbles from Shanghai. If US equities take a tumble USDJPY bears could press the trade all the way to the key 110.00 support as the day unfolds.

Boris Schlossberg
Managing Director

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