Trading news

Quiet Asian session as China close for New Year, Bank of Japan: Current account balance keeps on declining

- US job report brings welcome uptick in wage growth, sustainable wage inflation being the missing ingredient to help the Fed reach its inflation target and therefore to resume its tightening process
- After Friday’s sharp gains, the greenback consolidated during the Asian session. EUR/USD trader range-bound between 1.1128 and 1.1151
- Sunday’s Chinese FX reserve snapshot showed that reserves have only contracted by $90bn compared to the expected $120b
- Japan's current account balance may keep on declining and we forecast that the surplus era will end up by year-end, marking a recession from which effects can already be seen in Japan
- In the event of a pick up in oil prices Japan’s current account may go negative even faster
 
After Friday’s market turmoil, we are looking at a quiet start into the week with most Asian markets closed for holidays. Japanese equities traded higher for the second consecutive day as the JPY paired losses. The Nikkei was up 1.10%, while the broader Topix index edged up 0.84%. 
 
US futures were trading mostly higher in Asia after the S&P 500, the Nasdaq and the Dow Jones fell 1.85%, 3.25% and 1.30% on Friday amid mixed job report. As usual, the report contained both good and bad signals. The US economy generated only 151k private jobs in January (versus 190k median forecast), while December’s reading was downwardly revised to 262k from 292k. On the bright side, the unemployment rate fell below the 5% threshold to 4.9%. Finally, wage pressure continued to build up in January as earning per hours rose 0.5%m/m (vs 2.2% consensus) or 2.5% on the year-over-year basis (versus 2.2% expected). In our opinion, the uptick in wage growth is definitely more than welcomed by the Fed as sustainable wage inflation was the missing ingredient that could help the central bank to reach its inflation target and therefore to resume its rate tightening process. After Friday’s sharp gains, the greenback consolidated during the Asian session. EUR/USD trader range-bound between 1.1128 and 1.1151.
 
On Sunday, China released a snapshot of its foreign exchange reserves. The market was expecting a decrease of $120bn as the PBoC fought to support a weakening yuan. However, data showed that the reserves contracted by only $90bn to $3.23tn. China’s war chest has been shrinking consistently since June 2014, when it reached $3.99bn. Chinese markets will be closed the entire week as the country celebrates the New Year.
 
European futures are pointing to a higher open with the German DAX up 0.33%, the CAC 40 +0.43% and the SMI +0.09 as investors still try to determine whether Friday’s job report was a good or a bad thing. On the FX side, EUR/CHF gave up earlier gains as it returned below the 1.11 threshold. However, the single currency found a strong support at around 1.1050. Commodity currencies were the biggest winners of the session as crude oil prices stabilised above $30 a barrel. The Australian dollar soared 0.67% against the greenback, erasing partially last week’s sharp losses. AUS/USD is about to test the 0.7136 resistance implied by its 50dma; on the downside a hourly support can be found at around 0.70 (psychological level).
 
*Yann Quelenn, market analyst: Japan’s current account balance shrank to 960.7 billion yen in December from 1143 billion yen and well below forecasts of yen 1051 billion. Yet, the account balance is in surplus for the 18th consecutive month. Still, cheap energy imports and the overall weakness of the yen are helping to maintain a decent account surplus. Indeed, in the aftermath of the Fukushima disaster in 2011, Japan relied more on energy imports as nuclear reactors were systematically shut down, so lower oil prices have worked out well in terms of the balance of payments so far. At the same time, the continued weakening of the Japanese currency has spurred overall exports, which, nonetheless, suffered a third straight month decline in December due to China’s economic slowdown. China's demand for steel and semiconductors have fallen and as a result Japanese exports are down 8.0% from last year. We believe that the current account balance, even though positive, will keep on declining and we forecast that the surplus era will end up by year-end, marking a recession from which effects can already be seen in Japan (mixed GDP). In the event that oil prices pick up, the current account may go negative even sooner.”*
 
Today traders will be watching current account balance from Denmark; industrial production from Turkey and Spain; building permits from Canada; sight deposits from Switzerland.

Monday, 08 Feb, 2016 / 12:27

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Source : http://en.swissquote.com/fx/news

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