China Exports Surge Ahead of the FED and a December Green Light

The markets are on the move, with China’s trade data impressing ahead of the FED’s policy decision and rate statement that could be a December green light.
Bob Mason
Fed

Earlier in the Day:

Economic data released through the Asian session this morning was on the heavier side, with key stats including September current account and machinery orders out of Japan that were released ahead of October trade figures out of China.

Outside of the stats, the RBNZ delivered its monetary policy decision and policy statement ahead of a press conference, the Kiwi Dollar in action ahead of the opening bell.

For the Kiwi Dollar,

The RBNZ held rates unchanged at 1.75%, which was in line with market expectations, with focus being on the policy statement and RBNZ press conference.

While the hold on rates was expected, the RBNZ was clearly showing little intent to take a more hawkish outlook on policy, stating its intention is to keep the official cash rate at current levels through 2019 and 2020.

The RBNZ also stated that there are a number of risks being monitored and in the event of these risks materializing, the official cash rate may need to be adjusted to ensure inflation hits target and maximum sustainable employment is achieved.

Risks and uncertainties identified by the RBNZ included a faster pickup in inflation than anticipated that could force the RBNZ to lift rates sooner, or a possible slowdown in the Kiwi economy due to a weaker investment growth or softer demand for products should the ongoing trade war between the U.S and China begin to bite. Slower growth would lead to weak price pressure and employment growth that could lead to the RBNZ lowering rates to support employment and prop up inflation at around 2%.

The Kiwi Dollar moved from $0.67896 to $0.67820 on the release of the statements and policy decision, while holding steady through the press conference, holding on to $0.6783 levels. At the time of writing, the Kiwi Dollar was up 0.3% to $0.679, supported by the pickup in risk appetite through the morning.

For the Japanese Yen,

The current account surplus narrowed from ¥1.838tn to ¥1.822tn, which was worse than a forecasted widening to ¥1.897tn, while of greater significance will have been a material slide in core machinery orders.

  • Year-on-year, core machinery orders fell by 7%, which was worse than a forecasted 7.7% rise following August’s 12.6% jump.
  • Month-on-month, core orders tumbled by 18.3%, which was worse than a forecasted 10% fall following a 6.8% rise in August.

The slide in core machinery orders was the most on record, though much of this was attributed to an earthquake and typhoons that weighed on output, October’s numbers needing to bounce back to ease any concerns over demand.

The Japanese Yen moved from ¥113.57 to ¥113.553, against the U.S Dollar, upon release of the figures before easing to ¥113.69 at the time of writing, down 0.15% for the session.

Out of China, trade data may well have perplexed the U.S President, with exports surging by 15.6% in October, coming in well ahead of a forecasted 11% and September 14.5% rise. Imports also saw a significant jump, rising by 21.4%, which was better than a forecasted 14% rise, following September’s 14.3% increase.

The trade surplus, in Dollar terms, widened from $31.70bn to $34.01bn, coming up short of a forecasted widening to $36.27bn, though few in the market will be put off by the numbers.

The Aussie Dollar moved from $0.72693 to $0.72773 upon release of the figures, before rising to $0.7280 at the time of writing, a gain of 0.05% for the session.

In the equity markets,

It was a bullish start to the day, with the Asian majors on the bounce, the Nikkei leading the charge, rallying by 1.93%, with the Hang Seng and CSI300 up 0.90% and by 0.68% respectively at the time of writing. Lagging behind was the ASX200, which was up just 0.46%, the morning gains coming off the back of strong gains from the U.S and this morning’s trade figures out of China, though the majors have eased back from more material gains from earlier in the session.

The Day Ahead:

For the EUR, economic data scheduled for release is limited to September trade figure out of Germany that will likely garner some interest, a forecasted narrowing in Germany’s trade surplus EUR negative, though with the ECB economic bulletin and EU economic forecast also due out, outlook may ultimately have the final say.

On the political front, a pullback in the Dollar has seen the EUR bounce, with the Italian coalition government’s budget now likely to draw more attention as the dust settles from the U.S mid-terms, the Italian government seemingly showing little interest to conform to the EU’s rules.

At the time of writing, the EUR was up 0.03% to $1.1429, Germany’s trade figures and geo-political risk in the mix through the day.

For the Pound, there are no material stats scheduled for release through the day, with a slide in the RICS House Price Balance for October having little impact on the Pound, the house price balance falling by 10% following a 2% fall in September.

Focus remains on Brexit, with a cabinet meeting to sign off on a framework to a Brexit deal likely to come during or after the weekend, the British PM in Brussels today ahead of a gathering of EU leaders over the weekend that gives Theresa May opportunity to try to wrap up the Irish border issue ahead of the next EU Summit later this month.

At the time of writing, the Pound was flat at $1.3126, with Brexit the area of focus through the day.

Across the Pond, economic data scheduled for release out of the U.S is limited to the weekly jobless claims figures that are unlikely to have a material bearing on the Dollar, with focus shifting to today’s FOMC meeting, where rates are expected to be left unchanged, while the FOMC statement may well give a green light to a December rate hike that is largely priced in.

Assuming there are no surprises from today’s FOMC statement, we can expect the Dollar to continue to respond to the mid-terms, with some chatter from Capitol Hill to be expected.

At the time of writing, the Dollar Spot Index was up 0.21% to 96.194, the FED and Capitol Hill in focus on the day.

For the Loonie, economic data is limited to housing sector figures that are unlikely to have a material bearing on the Loonie, with the ongoing slide in crude oil prices, off the back of rising inventories, pinning the Loonie back from any upside this week.

The Loonie was down 0.02% to C$1.3115 against the U.S Dollar at the time of writing, with crude oil prices the key driver through the day.

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