Chinese Export Powerhouse Slowing

Weekly Report - 15/06/2015

Data released the prior week showed the growing divide between the “haves” and “have nots” of Asia as economies continue to diverge. Chinese data showed the manufacturing giant experiencing a sharper downturn than previously anticipated, raising the stakes for further easing while Japan managed to outperform consensus estimates on multiple data points.

Last Week

Data in the last week centered mainly on the Asia-Pacific region with important economic numbers released from China, Japan, and New Zealand. The week started out with the Chinese trade balance which saw the surplus rose by 75%. While positive on a headline basis, exports contracted at a -2.50% annualized pace while imports fell by an even steeper -17.60% year over year. Across the sea, Japan saw a major uptick in gross domestic product, with the latest figures showing 1.00% growth in the first quarter with the economy expanding at a 3.40% annualized rate. However, comments from Bank of Japan Governor Kuroda sent the Yen surging higher as members believe the Yen might has devalued too far as they seek a USDJPY target of 1.1500-1.2000. Further south, New Zealand surprisingly cut interest rates to 3.25% as the Reserve Bank of New Zealand contends with higher fuel prices while dairy prices have undergone a slump. Further monetary accommodation might be plausible if the economy continues to cool. Lastly, Greece continued to a headline generator after the IMF recalled its negotiators from Brussels and Europe put pressure on the nation to accept a deal or default. Time is running out as the creditors lose patience with Greece.


The Week Ahead

The dominant event that traders are preparing for in the upcoming trading sessions is the US FOMC Statement due on Wednesday. Although the Central Bank is not forecast to raise interest rates at this meeting, they could provide critical details on the timeline for monetary policy normalization. This event will not be paralleled by any other announcements including any Greek developments in reference to the impasse with creditors. Other important events in the pipeline include consumer inflation figures from the United States, United Kingdom and Euro Area. While the Euro Area is expected to hold constant, hanging on just barely to expansion, the UK is forecast to see a jump from deflation back into inflation on an annualized basis. The comparable release from the United States is expected to see a rise in the monthly figures while annual figures continue to trend closer towards the deflationary threshold, complicating the Federal Reserve’s policy efforts. Other important events include housing data from the United States in the form of building permits and housing starts. After the previous month’s exuberance, the both numbers are expected to taper slightly. Lastly, New Zealand will be releasing quarterly and annualized gross domestic product figures for the first quarter of 2015.


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