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Yellen’s not-so-hawkish tone and China’s strong trade numbers both contributed to a risk-friendly environment…for equities. Not so much for the yen crosses, though.

  • AU MI inflation expectations up by 4.4% vs. 3.6% gain in May
  • China’s foreign direct investment (ytd/y) down by 0.1% in June vs. 0.7% dip in May
  • BOE’s McCafferty calls for early unwinding of QE
  • China’s foreign direct investment (ytd/y) down by 0.1% in June vs. 0.7% dip in May
  • China’s trade surplus widens from 282B CNY to 294 CNY in June
  • China’s trade surplus up from $40.8B to $42.8B in June

Major Events/Reports:

China’s trade data

Trade numbers from the world’s second largest economy came in strong as global demand pushed exports higher.

China’s exports grew by 11.3% from a year earlier in June, while imports popped up by a whopping 17.2%. Both exceeded analysts’ expectations and helped push China’s trade surplus from 282B yuan to 294B yuan. In dollar terms, this translates to a surplus of $42.8, up from $40.8 in May.

As strong as the numbers are, market players are now looking forward to factors that might affect the numbers.

A stronger yuan against the dollar, for example, could weigh on exports in the near future while the government’s efforts to cool the property market could lead to less demand for imports such as iron ore and coal.

BOE’s McCafferty calls for early unwinding of QE

Monetary Policy Committee (MPC) member Ian McCafferty gave the pound some (but not a lot) lift earlier today when he said in an interview with the Times that the BOE should consider unwinding its QE program earlier than planned.

Recall that the BOE’s current play is to not start reversing QE until interest rates are a bit higher than they are today.

McCafferty is one of the three who voted for a rate hike in June and has said that he will vote for it again in August. He cited strong jobs data and a 42-low unemployment as bases for his rate hike call.

More pressure for the dollar

The dollar got another dose of selling today as Yellen’s not-so-hawkish testimony brought relief to the equities markets and inspired risk appetite. Of course, it also helped that China printed strong trade numbers.

  • Nikkei, which did NOT like yesterday’s USD/JPY selloff slid by 0.17% to 20,065 but
  • Australia’s A SX 200 is up by 1.09% to 5,735.40;
  • Hang Seng is up by 1.14% to 26,340.50 and
  • Shanghai index is up by 0.60% to 11,566.10.

Major Market Mover(s):

USD

The Greenback lost more pips to its major counterparts as traders priced in Yellen’s not-so-hawkish testimony.

USD/JPY dipped by another 27 pips (-0.24%) to 112.92, EUR/USD popped up by 16 pips (+0.14%) to 1.1435, AUD/USD is up by 14 pips (+0.18%) to .7692, and USD/CHF fell by 11 pips (-0.11%) to .9638.

JPY

The yen gained ground across the board thanks despite the bought of risk appetite in the equities markets. One possible explanation is that the yen crosses are taking cues from USD/JPY.

EUR/JPY is down by 15 pips (-0.12%) to 129.12, CAD/JPY is down by 24 pips (-0.27%) to 88.63, and GBP/JPY is down by 22 pips (-0.15%) to 145.62.

Watch Out For:

  • 6:00 am GMT: German final CPI expected to remain at 0.2%
  • 6:45 am GMT: French final CPI expected to stay at 0.0%
  • 7:15 am GMT: Switzerland’s PPI
  • 8:30 am GMT: U.K. BOE’s quarterly credit conditions survey