China data outperforms

China’s trade data has outperformed this morning, showing no evidence of wilting under rising prices, supply disruptions, virus restrictions or any other excuse you wish to insert. The June surplus rose to USD 51.50 billion, with June Exports YoY increasing 32.20%, and June Imports YoY increasing by 36.70%, blowing the consensus forecast out of the water.

That makes last Friday’s RRR cut by the PBOC all the odder when taken in this context. It could be that the PBOC and other organs of state believe “peak recovery” is upon China and are trying to get ahead of the game, or that it was simply housekeeping to offset the wave of maturing MLF’s to be repaid by the banking sector in the months ahead. Time will tell which is the correct, like so much at the moment, including the transitory/sticky inflation argument, the chips could fall either way.

The robust China data will be a shot in the arm for Asia, though, and a sense of relief across the region will be palpable. Ex-China, Asia and Australia are dealing with varying waves of Covid-19, which, given their stubborn refusal to go away, will inevitably lead to some mollifying of growth prospects for the rest of the year. The Bank of Indonesia head-kicked that process of yesterday by downgrading the country’s 2021 growth forecast, suggesting short-term downward pressure on the rupiah, and reaffirming the central bank’s dovish stance. It won’t be the last.

Inflationary pressures are still circling, though, with New Zealand Food Inflation YoY for June surprising to the upside, printing at 2.80%, well above the 1.8-% expected. That has seen the kiwi rise today as markets pencil in a higher risk that this week’s RBNZ meeting could contain a tapering surprise. I do doubt this outcome, though, as the RBNZ will be looking across the Tasman at Sydney and Covid-19 across Asia and quite rightly saying the downside risks internationally are not balanced at all and will maintain their uber-dovish stance.

Markets eye US  inflation

French and German Inflation is released this afternoon, but it will be US Headline and Core Inflation that will captivate financial markets’ attention. In particular, the YoY Core Inflation for June will be the centre of focus and whether it climbs above 4.0%, and if so, by how much. The US Treasury bond auctions passed without incident overnight, suggesting markets remain unconcerned about an upside surprise.

It is fair to say that markets, generally across asset classes, are circling in a holding pattern awaiting the US CPI data. From my perspective, it will take a print by the Core CPI well North of 4.0% to shake the markets from their present torpor. The weight of cash capping bond yields and flowing into stocks by default is just too heavy right now. If JP Morgan and Goldman Sachs produce blockbuster quarterly results today as expected, the inflationista’s job will become harder still.

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Jeffrey Halley

Jeffrey Halley

Senior Market Analyst, Asia Pacific, from 2016 to August 2022
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley was OANDA’s Senior Market Analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes.

He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays.

A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV and Channel News Asia as well as in leading print publications such as The New York Times and The Wall Street Journal, among others.

He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley
Jeffrey Halley

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