Concerns over higher borrowing rates for businesses and the impact of the U.S.-China trade war dragged on higher-yielding bets and pushed safe havens higher during the Asian session.
- RBA: no “strong case” to adjust the cash rate in the near term”
- Australia’s home loans dips by 1.0% vs. 0.9% slip expected, 2.2% decline in August
- China’s CPI (y/y) maintains 2.5% growth in October
- China’s PPI (y/y) inches up by 3.3% as expected vs. 3.6% gain in September
RBA: no near-term adjustments?
Earlier today the Reserve Bank of Australia (RBA) printed its quarterly statement and projections about the economy and its policies.
The central bank applauded the “broad based” growth in Q2 and pointed out that indicators suggest “further solid growth” in Q3.
Governor Lowe and his team now expect GDP to clock in at around 3.5% (instead of 3.0%) in 2018 and 2019 before production of commodities stabilize in late 2019.
Consumer prices are also expected to “increase gradually,” with both headline and inflation expected at around 2.25% near the end of 2020.
RBA members were also excited about the labor market, sharing that conditions “have been stronger than earlier expected.” They now expect employment to “increase faster than growth in the working-age population” and reach around 4.75% by the end of 2020.
At the end of the day, the central bank noted that “higher interest rates are likely to be appropriate at some point.” However, it also noted that until progress is made in reducing unemployment and keeping inflation steady, members also don’t see a “strong case to adjust the cash rate in the near term.”
China’s CPI and PPI reports
China’s PPI, a measure of prices businesses receive for their products, slowed down from 3.6% in September to 3.3% in October. That’s the fourth consecutive slowdown and the lowest reading since March!
Higher commodity prices could have pushed prices earlier but cooling domestic demand for raw materials, as well as weaker manufacturing activity weighed on overall producer prices.
A separate release showed consumer prices maintaining its 2.5% annualized growth in October. Turns out, the slowdown in food price increases was offset by faster increases of non-food costs.
Monthly prices, however, only clocked in a 0.2% uptick after September’s 0.7% rise and marked the slowest monthly reading since June.
Risk aversion across the board
With no bombshell to change the tides, Asian session market players took cues from their U.S. session counterparts and priced in another rate hike from the Fed (read: higher borrowing costs for companies) by December.
Of course, it also didn’t help that today’s Chinese data releases reminded traders that the U.S. and China are still in a trade war with no end in sight just yet.
- Nikkei is down by 0.94% to 22,276.3
- A SX 200 is down by 0.19% to 5,890.3
- Shanghai index is down by 1.29% to 2,601.521
- Hang Seng is down by 2.39% to 25,601.2
Market bears didn’t spare major commodities, with gold slipping on the back of a more stable dollar demand.
Meanwhile, crude oil benchmarks continued their decline amidst oversupply worries and concerns that a slowdown in global growth would weaken demand for the Black Crack.
- Gold is down by 0.43% to $1,218.49 per troy ounce
- Brent crude oil is down by 0.16% to $70.79 per barrel
- U.S. WTI is down by 0.25% to $60.60 per barrel
Major Market Mover(s):
AUD and NZD
Concerns over China’s economy an overall risk aversion in the markets took pips away from commodity-related currencies that would suffer from weaker demand from China.
AUD/USD is down by 15 pips (-0.21%) to .7239; AUD/JPY is down by 29 pips (-0.35%) to 82.46; EUR/AUD is up by 16 pips (+0.10%) to 1.5674; GBP/AUD is up by 27 pips (+0.15%) to 1.8026, and AUD/CHF is down by 8 pips (-0.11%) to .7291.
NZD/USD is down by 21 pips (-0.31%) to .6732; GBP/NZD is up by 44 pips (+0.23%) to 1.9381; EUR/NZD is up by 30 pips (+0.18%) to 1.6852; AUD/NZD is up by 11 pips (+0.10%) to 1.0752, and NZD/CHF is down by 14 pips (-0.13%) to .8873.
The low-yielding yen was king of pips during the Asian session, as traders priced in U.S.-China trade war jitters and potentially less profits for Asian businesses.
USD/JPY is down by 15 pips (-0.13%) to 113.91; EUR/JPY is down by 35 pips (-0.27%) to 128.26; GBP/JPY is down by 33 pips (-0.22%) to 148.65, and CHF/JPY is down by 28 pips (-0.25%) to 113.10.
Watch Out For:
- 7:45 am GMT: France’s industrial production (-0.3% expected, 0.3% previous)
- 9:30 am GMT: U.K.’s monthly GDP (0.1% expected, 0.0% previous)
- 9:30 am GMT: U.K.’s manufacturing production (0.1% expected, -0.2% previous)
- 9:30 am GMT: U.K.’s preliminary GDP. Read Forex Gump’s trading guide if you’re trading the event!
- 9:30 am GMT: U.K.’s preliminary business investment (q/q) (0.2% expected, -0.7% previous)
- 9:30 am GMT: U.K.’s construction output (0.2% expected, -0.7% previous)
- 9:30 am GMT: U.K.’s services index (3m/3m) to remain at 0.5% in September?
- 9:30 am GMT: U.K.’s industrial production (-0.1% expected, 0.2% previous)