Risk Aversion Mood Sets In

Daily Analysis - 13/10/2015

Commodity Risk Assets Giving Back Gains as Yen Surges

Soft trade balance numbers from China have kept the equity markets under pressure in the early Asian trading session. Focus shifts to the UK's inflation numbers today while the US trading session is expected to see another quiet day in the markets.

China’s Trade Balance Posts Soft Figures

China's trade balance released earlier today showed that growth bounced back at a modest pace in August. China's trade balance increased $60.3 billion above the median estimates of $46.9 billion but remained soft from the $60.2 billion seen previously. The rebound in trade balance is expected to remain low with the export orders in September PMI showing a print of 47.9 in September, posting the second lowest reading in nearly 31 months. In early trading, the Asian equity markets were lower pointing to a possible risk aversion mood setting in. The Australian dollar, alongside the Kiwi and the dollar from Canada were all trending weaker, losing on average -0.50% to the Greenback with the Japanese Yen surging 0.13%. AUDUSD retreated off the near 7-week highs of 0.737 to trade near the lows of 0.731.

US Closer to Lifting Crude Oil Ban

The US House of Representatives passed a bill to lift a ban on crude oil exports. The clearing of the bill in the House puts US crude oil exports close to seeing the end of a 40-year old ban on account of the Arab oil embargo back in the 1970s. The bill now heads to the US Senate with President Obama having stated that he would veto the bill should the Senate fail to pass it. Opening the doors to crude oil exports from the US could be seen as a game changer as far geo-political balances are concerned. In recent days, crude oil has turned increasingly volatile with prices touching the highs of $50. OPEC noted in its monthly report that crude oil markets could find balance by end of 2016 as higher cost of production and lower prices could squeeze out the expensive shale oil producers in the US. It also noted that production in the US declined to 13.5 million barrels per day in the third quarter from 13.8 million the previous quarter and expects to see US oil production to fall to 13.4 million barrels per day in the fourth.

Will UK CPI Put a Lid on GBP Rally?

The British Pound, which gained close to 1.46% since hitting a 20-week low of 1.5106 two weeks ago, will be looking to the monthly inflation data due today at 09:30. Expectations are slightly hawkish with the core annualized CPI expected to rise 1.1%, up from 1.0% previously while the headline CPI is expected to rise a modest 0.2% annualized from 0.0% last month. The GBPUSD pair is also potentially signaling the end of the correction based on yesterday's price action and looks poised for a dip back to 1.5285 level of support. There is not much of data from the US today so the focus in GBPUSD will clearly be the CPI and the PPI data.

Slow Day in US Session

The US markets re-open today after being closed for Columbus day yesterday. However, the US session is devoid of any economic releases. The Federal Reserve’s Bullard is expected to give a speech but it is unlikely to see a major reaction from the markets. The US Dollar continues to trend weaker across the board. Earlier yesterday, Fed's Dennis Lockhart noted that the economic data so far was sufficient enough for a rate hike in October but that it would add more weight for a Fed rate hike in December. The markets continue to pare back its expectations for an October rate hike ahead of the monthly US inflation and retail sales numbers due later in the week. The S&P500 futures posted modest gains, rising 0.24% for the day, closing at 2020 at the bell yesterday.