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August 2016

Chinese trade slows sharply

Published: Monday 08 August 2016

  • Chinese trade slows sharply
  • NZ rate cut potential on Thursday
  • Sterling faces a lighter week of data

Adam Peaty is a phenomenon. He won the first Team GB medal in Rio and it’s a gold one. Now he is gold Olympic medal winner, World champion, World record holder, Commonwealth champion, European champion, British champion and was the inspiration for Jazz Carlin to win Britain’s second medal, a silver one in her event. Fantastic; just like the British women’s rugby sevens team; beating all-comers in real style. This Olympics is shaping up.
 
Data released overnight we found out that Chinese exports tumbled in July by 4.4% but, more worryingly for China’s suppliers, imports fell by 12.5% (when measured in their US Dollar value). Many believe we will see further weakness in the Chinese economy as global demand damages their export opportunities. That will weigh on the minds of traders concerned over the currencies of China’s suppliers.
 
Which brings me neatly to New Zealand. The RBNZ meets on Thursday and it seems increasingly likely they will cut their base rate by 25 basis points when they do. That follows the cut by their Australian counterparts last week and is in keeping with the generally weaker data across the region. It is also a reaction to a very strong NZ Dollar which is damaging exporters. Before we get to that decision, we will see NZ credit card spending data and inflation data from China; both of which will have an influence on the RBNZ’s thinking.
 
After a turbulent week for the Pound, this one is a little less likely to cause major ructions. However, trade balance data as well as industrial and manufacturing output data will be key to the Pound’s direction. That data hits us on Tuesday. Other than these nuggets of excitement, the UK data diary is a quiet one this week but the politicos and the commentators are still bumbling on about Brexit, so there is plenty of opportunity for volatility; it’s just a tad less predictable as far as the timing is concerned.
 
There is a lot of Eurozone data due this week including the final assessment of Q2 economic growth and industrial production data. We will also get a scattering of inflation reports from various member states and we started the week with very positive German industrial production figures showing a 0.8% month on month rise. That’s above expectations and could have been better but for a slow construction sector. It serves to highlight the disparity between the powerhouse German economy and the 25% unemployment and zero growth in some of the Mediterranean states.
 
This week’s meaningful US data is limited to tomorrow’s productivity data and Friday’s retail sales numbers. There are a few sentiment indices and some minor construction sector data but the US Dollar, which remains very strong and largely overbought, is unlikely to strengthen much on this news.
 
I have been laughing about the furore over Helen Skelton’s skirt whilst presenting the Olympic swimming for the BBC. True, her skirt hemline was very high but in every other camera shot there were swimmers being interviewed in their bathing suits and yet the viewers were more concerned with Helen’s thighs. Bizarre.
 

Bully

 
A bully is insulting a smaller boy in the playground. “Why aren’t you wearing a football shirt?”, he says.
 
“I don’t follow football”, says the smaller boy.
 
“It’s the FA cup this weekend. Who do you support?”
 
“As I said, I don’t watch football, so I don’t support either team.”
 
“Why aren’t you a football fan?”
 
“My parents love rugby, so I do too,” says the smaller boy.
 
“Well, that’s a rubbish reason,” says the bully. “What if your parents were morons? What would you be then?” says the bully.
 
“Then I’d probably be a football fan.”
 

Today's Major Economic Releases 

 
Market BST Data/Event Previous Expected
EUR 09:30 EU: Sentix investors confidence 1.7 4.2
CAD 13:30 Canada: Building permits m/m -1.9% 2.7%
USD 15:00 US: Labor market conditions index m/m -1.9 1.9

FX Research by David Johnson

Daily Currency Analysis with Michael Hart



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