Article Highlights

  • China’s markets out on Spring Festival holiday
  • AU building approvals slips by 1.2% vs. 1.7% decline expected, 7.5% uptick previous
  • AU trade balance shows 3.51B AUD surplus vs. 2.00B AUD expected, 2.04B AUD previous
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Risk aversion was the name of the game during the Asian session, as traders priced in a couple of bearish news. What happened during the session anyway?

Major Events:

Australia’s trade data – According to the Australian Bureau of Statistics (ABS), Australia’s trade surplus clocked in at 3.51B AUD in December, a whopping 72% higher than November’s 2.04B AUD figure and better than the expected 2.20B AUD reading. It’s also the second consecutive month of surplus as well as the HIGHEST reading since record-keeping began in July 1971. Wowza!

A closer look tells us that it was all about exports. See, the value of exports jumped by a record high of 5.0% for the month thanks to the 6.0% surge of non-rural exports. Metal ores and minerals (+10.0%) and coal, coke, and briquettes (+14%) also logged in significant improvements.

The ABS details iron prices have increased by 4% – 7% while volumes rocketed by 12% – 19%. Gains for coal are higher with prices rising by 2% – 27% while volumes shot up by 15% – 21%.

On the other side of the ledger, imports only inched 1.0% higher with consumption goods rising by 2% and other merchandise goods popping up by 2%.

Overall, Australia’s trade picture closely correlates with increased demand from China. If you recall, the world’s second largest economy and Australia’s biggest trading buddy had boosted its infrastructure projects and has cut back on its coal output. This provided boosts to iron ore and coal prices and propped up the exports sector for the month.

Analysts are now saying that today’s data would help Australia dodge a technical recession. However, others are worried that increases in mining profits won’t boost household consumption by much, since investment has been shying away from the sector lately and wage growth remains tepid.

Overall risk aversion – Risk aversion was the name of the game during the Asian session, as traders priced in a couple of bearish news. Let me count the reasons:

First is the FOMC statement, which mostly stuck to its previous statements and failed to offer more hawkish remarks. The lack of fresh hawkish catalysts weighed on USD/JPY, which then affected Nikkei’s performance.

Next up is the decline in oil prices. See, the U.S. Energy Information Administration (EIA) just printed that oil stocks grew by 6.5 million barrels last week, which is way higher than the 3.3 million barrels that market players had expected. Not only that, but gasoline stocks also popped up by 3.9 million barrels.

This dragged U.S. oil down by 0.56% to $53.60 per barrel while Brent crude oil also took a 0.40% hit to $56.60 per barrel.

Jitters over the BOE’s Super Thursday might have also caused the lack of risk-taking. Remember that the BOE is set to print its monetary policy decision and inflation report with Carney’s scheduled presser on its heels.

Last but not the least is the overall uncertainty over Trump’s latest policies. See, the POTUS just threw shade at Iran after a ballistic missile test this week. Indeed, U.S. National Security Adviser Michael Flynn just announced that they’re putting Iran “on notice” after its stunt.

Major Market Movers:

AUD – The comdoll flew across the board following a better-than-expected trade data from Australia.

AUD/USD is up by 53 pips (+0.70%) to .7641, EUR/AUD dropped by 80 pips (-0.56%) to 1.4121, and AUD/NZD shot 40 pips higher (+0.38%) to 1.0462.

JPY –The yen gained a couple more pips against its major counterparts, as overall risk aversion pushed traders into the arms of the low-yielding currency.

USD/JPY is down by another 31 pips (0.27%) to 112.72, GBP/JPY dropped by 52 pips (-0.36%) to 142.74, and EUR/JPY fell by 18 pips (-0.15%) to 121.62.

Watch Out For:

  • Japan’s consumer confidence (43.7 expected, 43.1 previous)
  • 9:00 am GMT: Spanish unemployment change (60.2K expected, -86.8K previous)
  • 9:15 am GMT: Switzerland’s retail sales (0.5% expected, 0.9% previous)
  • 10:00 am GMT: ECB economic bulletin
  • 10:30 am GMT: U.K. construction PMI (53.9 expected, 54.2 previous)
  • 11:00 am GMT: Euro Zone PPI (0.5% expected, 0.3% previous)
  • 1:00 pm GMT: BOE’s Super Thursday (Monetary policy decision, Inflation report, Press conference)

See also:

U.S. Session Recap
London Session Recap

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