Daily Commentary: EUR/JPY Tumbles Below 128.00, Gold Hits Resistance

• Incredibly disappointing Chinese exports spur stock market rally If you thought it was hard to trade the NFP, imagine trying to anticipate moves in Chinese stocks! The March trade data released today showed an unexpected collapse in exports, which fell 15.0% yoy (expected: +9.0%). The trade surplus unexpectedly fell to USD 3.1bn (expected: USD 40.1bn) as a result. The March figures are erratic and often low; for example, the country had a trade deficit in March 2013 and March 2010. Nonetheless, combined with weak exports from South Korea (down on a yoy basis each month for the first three months of the year) they suggest a weak external environment is likely to add to sluggish domestic demand and slowing investment to put pressure on the Chinese economy. Result: Shanghai stocks up 1.5%! One money manager quoted on Bloomberg explained it nicely: “The trade figures aren’t good but that’ll lead to market expectations of more stimulus.” In other words, bad news is good news. The problem is, I don’t think the government is likely to launch the kind of debt-fuelled stimulus program that the market is hoping for, and even if it tried, the marginal efficiency of additional fiscal stimulus would probably be pretty low, given how much has been done already. I expect investors to be disappointed eventually and for the market to fall back. That would have serious implications for AUD. AUD/USD fell sharply this morning after the trade figures came out. I remain bearish on AUD.

Get The News You Want

Read market moving news with a personalized feed of stocks you care about.

Get The App

• Commitment of Traders report shows investors still bearish EUR The COT report showed that investors closed out a bit of their short EUR positions but nothing special; they remain overwhelmingly short EUR and overwhelmingly long the DXY index.

• Today’s highlights: The calendar is very light today. The only noteworthy indicator during the European day is the Swiss National Bank weekly sight deposit data, and that hasn’t been very noteworthy recently. Deposits have been steady and indeed if anything drifting lower over the past month, indicating that the SNB has not been intervening in the market.

• There are no major events or indicators released during the US session and no speakers on Monday’s agenda.

• As for the rest of the week, the big day is Wednesday when we have two central bank policy meetings: the ECB and the Bank of Canada. At their last meeting, the ECB announced the details of the QE program and the first month of its implementation has already been successful. The Bank achieved its 60bn target, as it bought around 50bn government bonds and another 10bn from its other programs. Therefore, expectations for new measures are limited. There could be some comments about Greece, in particular the size of Greek banks’ use of ELA. The Bank of Canada is expected to keep rates unchanged, so the market impact will depend on the tone of the statement. The recent good data could bring a more optimistic statement that would cause CAD to firm, especially given the speculative community’s short CAD position.

• On Tuesday, we get UK’s CPI for March. It’s expected to remain at zero, with the core rate expected to stay at 1.2%. As the inflation rate falls this pushes back expectations of a rate hike. Thus, a drop here could be negative for GBP. In the US, retail sales for March are coming out. Both figures are forecast to have rebounded after falling in February. The strong report could add to the greenback’s strength.

• On Wednesday besides the two central bank meetings we also have a number of important indicators from China: Q1 GDP, retail sales, industrial production and fixed asset investment for March. Q1 GDP is expected to slow to 7.0% yoy from 7.3%. This is the government’s target so it wouldn’t necessarily set off any alarm bells. However, a below-expectations growth rate is likely to weaken AUD and NZD.

• On Thursday, Australia’s unemployment rate for March is expected to remain unchanged at 6.3%, while employment is expected to increase by the same figure as in February. This could strengthen AUD a bit. In the US, we get housing starts and building permits for March. Even though the data are likely to show a mixed condition, a rise in housing starts and a decline in building permits, the overall trend is consistent with an improving housing market, which could boost US confidence and support USD.

• On Friday, UK employment data are due out. The unemployment rate for February expected to fall slightly, which normally could be GBP-positive, but at the same time the growth in average weekly earnings is expected to slow, so net net, it’s probably going to be a non-event or even GBP-negative. From the US and Canada, we get the CPIs for March.

• Finally, the G20 finance ministers & central bank governors meet in Washington on Thursday ahead of the spring meeting of the IMF. All the grandees of global finance will be there and are likely to make a lot of speeches. The US Treasury last week framed what’s likely to be a major debating point when it criticized several countries for excessive reliance on monetary policy and insufficient use of fiscal policy to stimulate demand. As a result Germany may come in for some criticism for its current account surplus, but the country is sure to ignore any such criticism, as it has up to now.