Risk aversion remains strong

Asian markets ended mostly lower on Wednesday as trade data from China weighed on sentiment, while Europe is also lower amid heightened economic uncertainty.

Trade data another blow

Chinese imports and exports slumped much more than expected last month as the economy continued to stall under the weight of Covid lockdowns, heatwaves, a property market wobble, slower global demand and a weaker yuan. The headwinds facing the Chinese economy are becoming increasingly fierce and recent efforts to shore it up have appeared inadequate.

Efforts to support the yuan may be slowing the decline but they’re certainly not preventing it, with 7 now in view against the dollar and a break looking very likely. That would be a big psychological blow for the currency and one that officials will and should take seriously. The yuan fix was set at the strongest bias against estimates on record today, highlighting the desperation. Further measures may be needed following the FX RRR cut this week.

Falling on deaf ears

Any trepidation around 140 in USDJPY was somewhat short-lived with the pair bursting through here over the last couple of days to hit 144, the highest since 1998. This has been met with more warnings, this time from the country’s Chief Cabinet Secretary who has repeated previous warnings that they are ready to take action if necessary and are watching with a high sense of urgency. It would appear that without actual action, the threats are starting to fall on deaf ears. It may be time to act or see further sharp declines in the yen against the dollar.

Interesting but not of much use

The BoE monetary policy report hearing probably came both a month too late and a week early to be of much use to investors. A lot has changed over the last month in the energy markets alone, while the country now has a new Prime Minister and a plan to deal with the economic shock to the economy. While there have been rumours about how the new government will deal with the cost-of-living crisis, there are no details that would enable policymakers to offer any insightful comments today or explain how it changes their past forecasts.

With that in mind, while interesting, the hearing probably offers little of substance to the markets. It’s clear though that Governor Bailey does not believe the blame for the impending recession lies at the door of the BoE, but rather the Kremlin for its war in Ukraine.

Bitcoin to spiral lower?

The risk environment was always looking like a major headwind for bitcoin and the technical setup wasn’t looking any more promising, so a significant break of $20,000 does not come as a great surprise. The question now is whether we could see another spiral, as we so often have in the past, in the event that bitcoin breaks the summer lows around $17,500 to trade at late 2020 levels.

For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/

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