- Latest data from China suggests that the effects of the several rounds of easing undertaken by the PBoC, together with the government’s fiscal stimulus did actually help the economy to adjust to the new environment of weak global demand
- Reports confirmed that China’s economic activity rebounded after the Chinese New Year but failed to clear the clouds on the horizons, suggesting that further stimulus is required to soften the impact
- AUDUSD, we maintain our downside bias on the pair, as the weakness in commodity prices and a looming rate cut by the RBA should prevent investors from supporting the Aussie
- USD/JPY was unable to break the strong 110 support to the downside and stabilised at around 110.40
- Overall, with the exception of commodity currencies, the FX market was globally driven by the US dollar with bias remaining on the downside as the monetary policy divergence story is losing traction, while the market awaits the FOMC’s minutes
- EUR/USD was treading water between 1.1340 and 1.14 as investors wonder whether the pair would be able to break to the upside the strong resistance that lies at between 1.1375-1.1495 On the downside, the nearest support can be found at 1.1335 then 1.1310
Judging by the latest data from China, it seems that the world’s second biggest economy is stabilising and that the effects of the several rounds of easing undertaken by the PBoC, together with the government’s fiscal stimulus did in fact help the economy to adjust to the new environment of weak global demand. After last week’s encouraging signs from the manufacturing sector, both the Caixin Services and Composite PMIs increased in March, printing above the 50 mark that separates growth from contraction. The Services PMI came in at 52.2 after printing at 51.2 in February, while the Composites one rose to 51.3 from 49.4. However, one should interpret this good news cautiously as the report also showed that composite employment fell at the fastest pace since January 2009. Overall, the report confirmed that China’s economic activity rebounded after the Chinese New Year but failed to clear the clouds on the horizons, suggesting that further stimulus are required to soften the impact.
In the absence of a clear driver, Asian regional equity markets were trading trendless, taking a breather from yesterday’s sell-off. In mainland China, the Shanghai Composite edged down 0.33%, while the tech-heavy Shenzhen Composite was “up” 0.07%. In Japan, equities were trading in negative territory with the Nikkei and Topix indices edging lower by 0.11% and 0.05% respectively. Elsewhere, shares were trading higher, boosted by a recovery in crude oil prices. The S&P/ASX rose 0.44% and the S&P/NZX surged 0.27% as the West Texas Intermediate jumped 2.56%, while the Brent crude rose 1.69% to $38.50 a barrel.
The Australian dollar got some colour back during the Asian, taking a breather from the sell-off, which brought the AUD/USD to 0.7510 from 0.7720, down 2.75%. Overnight the pair edged higher, hitting 0.7560. We maintain our downside bias on the pair, as the weakness in commodity prices and a looming rate cut by the RBA should prevent investors from supporting the Aussie.
EUR/USD was treading water between 1.1340 and 1.14 as investors wonder whether the pair would be able to break to the upside the strong resistance that lies at between 1.1375-1.1495 (high from February 11th and October 15th). On the downside, the nearest support can be found at 1.1335 (low from April 1st), then 1.1310 (low from March 31st).
USD/JPY was unable to break the strong 110 support to the downside and stabilised at around 110.40. Overall, with the exception of commodity currencies, the FX market was globally driven by the US dollar. The dollar index consolidated slightly below the 95 threshold, at around 94.80. The bias remains on the downside as the monetary policy divergence story loses traction, while the market awaits the FOMC’s minutes. The next support lies at 93.80 (low from October 15th).
Yann Quelenn market analyst: “Germany: Industrial Production consolidates: After the strongest jump in more than six years in February at +3.3% m/m, Germany Industrial Production growth did not collapse despite markets expecting a very weak read. The data printed this morning at -0.5% m/m for March. Domestic demand is definitely helping the German Economy as the overall weaker demand adds downside pressures to exports. The country is fighting to recover and it is one of the few countries, if not the only one, to have a sustainable debt. Servicing its debt is not as heavy as is the case with other European countries. It only represents 71.70% of the GDP.
However, despite its other fundamentals being on the right path, inflation is not picking up - currently stalling below 0%. And it seems that Wolfgang Schauble is holding the European Central Bank responsible for this situation. The German finance minister believes that only other European countries benefit from the current monetary policy. On our side, we believe that the single currency is still at stake and along with debts and sovereignty issues, Germany has the sentiment that its the one footing the bill for other countries. While recession in Europe is far from being over, a small look at debt and revenues should convince everyone, Germany’s competitiveness is limited by its neighbours. To be kept in mind - is anyone in Switzerland disappointed about not being in the Eurozone...?”