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May 2016

Chinese trade data disappoints

Published: Monday 09 May 2016

  • Chinese trade data disappoints
  • US employment data weakens USD
  • Sterling hit by post-Brexit rate cut comments
US employment data released on Friday disappointed the markets so much that many are now lowering their expectations for interest rate hikes. The markets had, until Friday, factored in two 25 basis point hikes in 2016 but that may be back to just one as we stand. The Dollar weakened initially but recovered its composure in early trade.
 
The Sterling – USD rate would have been a little higher but for the Brexit debate moving to the matter of security and some odd arguments that the EU might disrupt anti-terror and crime pursuance if the UK were no longer a member of the EU. I am still trying to see what anyone would gain by that but such are the scare tactics being utilised by either side in this muddled debate. Nonetheless, Sterling is weaker on most fronts this morning and the lack of data this week will perhaps allow for more of the same. We do have the Bank of England's interest rate decision on Thursday and whilst no change is likely at this stage, one of the other reasons the Pound has slipped is due to the expectation that further interest rate cuts would inevitably follow a decision to leave the EU.
 
China trade balance was published over the weekend and the headline of a $45.6 billion surplus looks, on the face of it to be rather attractive but the detail is where the devil can be found. Exports fell by 1.8% on the year; much worse than the 'unchanged' forecasts and imports were down by a whopping 10.9%, when the forecasters were expecting just 4.0% of decline. That's the 18th consecutive month of declines by the way. That had a negative impact on the countries that supply China and which supply commodities because China's imports are dominated by raw material products.
 
Hence the Aussie, Kiwi and Canadian Dollar are a little weaker this morning. Speaking of Canada, the terrible forest fires around Fort McMurray may finally be starting to ebb but the problem is not over and the impact on Canada's economy and exports is, as yet unknown. Nonetheless, it is entirely predictable that the Canadian Dollar would slip on this event.
 
The rest of the week is not a major one for key data. In addition to the items mentioned above, we will also see UK manufacturing data, a smattering of inflation reports from across the Eurozone as well as EU industrial production data. We will get the final assessment of Eurozone economic growth for Q1 and US retail sales too. So there is enough to keep traders busy and to keep volatility bubbling away but the non-data influences are perhaps more impactful. The Brexit campaign will continue to dominate the Pound, interest rate talk will affect the USD and Euro and commodity markets will tweak all other rates, so there will be no sneaking off to sit in a pub garden, more's the pity.
 
In other news, I am not sure how you say 'gert orf my laand' in Mandarin but a farmer in China, incensed by an illegally parked car, chose to use his tractor to haul the car through the village and smash it into a tree. The video on the internet is rather good; if you are a fan of carnage and destruction but I would love to see a translation of the insurance forms.
 

Examination

 
A woman brings a baby into the doctor's surgery for her 2 monthly check-up. The doctor examines the baby thoroughly and says, "She's a little underweight. Is she bottle or breast fed?"
 
"Breast fed", says the woman.
 
"OK, would you strip your top off please?" says the doc.
 
The woman does so and the doctor examines her fully before asking her to get dressed again. As she does so, he says, "Well it's obvious why she is underweight; you're not producing any milk at all."
 
"That's not surprising," says the woman. "I'm her grandmother, but I am so glad I bought her."


Today's Major Economic Releases

 
Market BST Data/Event Previous Expected
EUR 09:30 EUR: Sentix investor confidence 5.7 6.1
CAD 13:15 Canada: Housing starts 205 195
USD 15:00 US: Labour market conditions index -2.1 -2.1

 
Daily Currency Insight by David Johnson

Daily Currency Analysis with Michael Hart

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