Week in FX Asia – JPY Thriving on Market Turmoil

• JPY appreciates as investors seek safe haven
• China trade balance shrinks to $31 billion
• Chinese New Loans rise to CNY 857 Billion

This week was going according to plan around the globe until the release of the US Retail Sales numbers came in. A worse than expected –0.3% growth in September spooked the market into believing that the US economy could be as fragile as the rest of the globe. Asian stock markets were hit as investors were selling off their long positions and favoured the JPY as a safe destination. This caused a reversal in the price of the Yen which have been trading in a tight range around 107 only to drop below 106 as fear gripped the markets.

The USD/JPY managed to recover some of the ground lost and will finish the week in the 106.66 to 106.90 range after strong US employment and housing numbers. The mixed signals from Federal Reserve members didn’t do much for the market on Thursday and Chair Yellen kept her speech focused on inequality without touching on monetary policy items. The expectation regarding rates has been pushed back from summer 2015 to in some analyst views all the way to 2016. This allowed investors to better appreciate strong earnings reports and stoke dying risk appetites.

China faces a difficult hurdle in next week’s flash PMI. The number will give some guidance to the market surrounding the current speed the Chinese economy is operating under. This week the trade balance narrowed to below expectations at $30.94 billion. Both exports and imports were above expectations. Exports grew by 15.3% but imports also grew above forecast at 7% which narrowed the expected surplus.

After the Chinese central bank injected 500 billion CNY into local banks. The credit market has expanded as new loans were made in September. Chinese banks issued 857.2 billion yuan in September. This is seen as a positive as a government action is stimulating growth or at least avoiding a hard landing if the slow down is unavoidable.

Next Week For Asia:

Top events for the region: China GDP will be released on Tuesday. Given the slow growth experienced this year this number could confirm the slow down. Australian inflation figures will be released on Wednesday. There is an expected drop inflation from last month’s 3.0%. Thursday will bring a host of Flash Purchasing Manager Index survey results around the world but the eyes of the market will be focused on China’s released first. The reading is barely above 50 which means expansion. It would not be surprise is the latest number points to a contraction given global macro economic conditions.

The drop in US retail sales along other geopolitical events trigged a wave of uncertainty across the globe. Stock markets and emerging market currencies were the biggest losers as the US economy was thought to be slowing down. The last two days of the week calmed investor’s nerves as earning reports were solid as well as housing and employment indicators out of the US.

Next week has two major trends: Central banks and PMIs. The Reserve Bank of Australia releases its minutes on Tuesday. The Bank of England will also release the minutes from its rate setting meeting two weeks ago on Wednesday . Given that the BOE’s chief economist has cooled expectations of a rate hike this year there will be little surprise in the minutes. The Bank of Canada will announce its benchmark rate. No change is expected given the mixed economic data and employment data confusion.

The flash manufacturing purchasing manager’s index PMI is a survey of manager to gauge their optimism regarding business conditions going forward. HSBC for China and Markit for the rest of the world are the firms that have compiled the early draft of the data and will release it starting with China and the schedule will move around the world given insights into the state of the global economy.

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