Red Hot China Blows Cold

Perhaps China could lead the way? Nope, data this week has not given risk lovers a “warm and fuzzy feeling.” China’s HSBC Flash PMI fell to a seven-month low of 48.1 in June from a final reading of 48.4 in May. The most frightening part, the new orders index component fell to 46.8 from 48.4 last month, a three-month low. It seems that the Chinese government attempt to spur growth has yet to find some traction. Is the Euro disease spreading? The PBoC has indicated that China has made preparations for the worst case scenario in the euro-zone crisis. They have introduced a string of policies to stabilize investment demand and gradually stimulate domestic consumption. Despite this, the bearish outlook on China’s exports has the market looking for another PBoC rate cut.

Below are some other highlights of the week:

ASIA

• JPY: The country’s May department store sales fell to -1.0%, y/y, from +1.3% in April. Tokyo May department store sales eased to +2.1%, y/y, from +6.7%.
• CNY: China’s home prices in May fell in a record low 54 of 70 cities due to the government’s housing curbs and reduced demand. In April, prices fell in 46 of 70 cities. In major cities, home prices in Shanghai and Guangzhou fell by -1.6%, y/y, in May and home prices in Shenzhen fell by -2.3%, y/y.
• INR: Fitch revises India’s outlook from stable to negative, rating affirmed at BBB-
• INR: RBI left the repo rate unchanged at 7.00%, at odds with market expectations who had been pricing in a -25bp cut. Policy makers acknowledged much weaker growth but said that headline inflation was still above their comfort levels.
• AUD: Aussie new motor vehicle sales rebounded by +2.4%, m/m, in May following a revised -1% decline in April.
• NZD: The Kiwi’s Westpac Consumer Confidence fell to 99.9 in Q2 from 102.4 in Q1. Separately, the Performance of Services index marginally improved by +0.1pts to 56.8 in May as rapid expansion of new orders underpinned the second-fastest monthly pace in five years.
• AUD: The RBA minutes this week were less dovish than expected. The decision to ease -25bps was the product of a “finely balanced” debate between a rate cut and no cut. The option of a -50bps cut was never on the table, according to the minutes. This strikes a vivid contrast with market expectations, set for aggressive easing. Apparently, the impact on the economy of previous rate cuts had yet to be fully felt. Governor Stevens expects inflation to remain at the low end of its target range over the next year.
• JPY: Japan reported a trade deficit of -Â¥907.3b for May, exceeding the consensus forecast for a -Â¥544.4b shortfall. Exports rose +10%, y/y, while imports climbed +9.3%.
• AUD: Aussie Conference Board leading index declined -1.4% in April following a revised -0.2% fall in March. Separately, dwelling starts fell -12.6% in Q1.
• CNY: China’s 7-day repo rate jumped midweek to +3.45%, probably reflecting the “beginning of a month and quarter end liquidity squeeze among banks rather than a change in policy.”
• NZD: Kiwi Q1 current account deficit came in worse than expected at +4.8% of GDP vs. a deficit of +4.2% in Q4.
• CNY: China’s HSBC Flash PMI fell to a seven-month low of 48.1 in June from a final reading of 48.4 in May. The most frightening part, the new orders index component fell to 46.8 from 48.4 last month, a three-month low. It seems that the Chinese government attempt to spur growth has yet to find some traction. The bearish outlook on exports has the market looking for another PBoC rate cut.
• NZD: Kiwi card spending rose +0.4%, m/m, following +0.2% gain in May.
• TWD: Taiwanese data showed the unemployment rate coming in at +4.25% in May from +4.19% in April. IP contracted -0.21%, y/y, in May, improving from the revised higher -1.78% print in April.

AMERICAS Week in FX

EUROPE Week in FX

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