USD mildly lower, trading direction unconvincing

Market Brief

In the absence of economic data from the US, traders refocus on fundamentals from Asian countries. In Japan, the final GDP revision indicates that the economy contracted only by -0.3%q/q in the June quarter, up from -0.4%q/q preliminary estimate and above median forecast of -0.5%q/q. This good news will therefore refrain the Bank of Japan to increase quantitative easing at the September meeting, especially since Governor Kuroda said a couple of weeks ago that he’s still confident that the 2% inflation target is reachable by the end of 2016. Accordingly, USD/JPY dropped quickly below the ¥119 threshold. USD/JPY has been proven unable to return above its 200dma (120.81), favouring further weakness on the short-term. However, the pair will need fresh boost to break the strong support standing at 118.18.

In China, bad news keep piling up as both external and internal demand remained weak in August. Exports slumped for the second straight month, contracting 5.5%y/y in dollar term but still better than the 6.6% fall expected by the market. Meanwhile, imports came in worse than expected and contracted 13.8%y/y in dollar term versus -7.9% expected. All in all, trade balance printed at $60.24bn versus $48bn expected and $43.03bn previous read.

The data highlight the weak global demand during the summer months and add concerns about China’s ability to reorganize its economy toward a domestic generated growth. However, we can reasonably assume that the month of August was a bit “particular” this year. The month of September will therefore be key to determine whether this summer weakness will persist through the end of 2015. Equity trading has been very choppy in the Asian session with Chinese mainland shares erasing early session losses. The Shanghai Composite is up 1.075 while the tech-heavy Shenzhen Composite adds 0.77%. In Hong Kong the Hang Seng gains 1.09% while in Australia the S&P/ASX adds 1.69%. Japanese shares are the biggest losers among Asian equity markets, the Nikkei lost 2.43% while the broader Topix index fell 2% as China deepens concerns on growth.

In Europe, equity futures are trading mostly higher this morning as the German Dax adds 0.11%, the CAC 40 0.16%, Euro Stoxx 50 0.06%, the Footsie 0.30% while in Switzerland the SMI edge lower by -0.06% as unemployment rate rose 3.2% in August (n.s.a.) versus 3.1% expected. The single currency is adding gains against most currencies this morning as Germany reported above expectations trade data. Exports (s.a.) grew 2.4% in July versus 1% expected while imports printed at 2.2% versus 0.7% median forecast. Accordingly, EUR/USD reached 1.1229 earlier before returning almost to its initial level. GBP/USD rose 1.25% from yesterday low to 1.5355 as the pound was strongly oversold.

Today traders will be watching Q2 GDP and household consumption expenditure from the euro zone; NFIB small business optimism index and consumer credit from the US, Fed’s Kocherlakota will also speak about monetary policy in Evanston later tonight; Halifax house index from the UK.