Market Drivers For January 13, 2015
Europe and Asia:
CNY: Chinese Trade Balance 49.6B vs. 48.9B
UK: CPI 0.5% vs. 0.7%
North America:
USD: Economic Optimism 10:00
UK inflation dropped to its lowest level since 2000 with CPI gauge printing at 0.5% versus 0.7% eyed sending cable below the 1.5100 level in morning London trade as chances of BoE rate hike this year receded even further into horizon.
UK price levels have essentially collapsed as declines in energy costs, food and clothing have all led to greatly diminished inflation expectations. This is a far car from several years ago when UK economy was running the highest inflation levels in the G-7 universe. Then Governor Mervyn King was forced to write a letter to Chancellor of Exchequer explaining why the BoE missed its inflation targets to the upside. The present Governor Mark Carney will now have to do the very same thing as he explains why the BoE targets are missing to the downside.
In general, today's news only served to reinforce the bearish bias against sterling as the pair continues to wallow near the recent lows. For now the key 1.5000 level continues to hold, but it is likely to be just a matter of time before the cable pushes to test that figure as monetary policies between UK and US continue to diverge.
Elsewhere, in Asia the Chinese Trade Balance came in line with forecasts with trade surplus registering the third highest reading on record. Chinese Trade came in at 49.6B versus 48.9B indicating that the export engine continues to fire on all cylinders. Chinese imported record amounts of oil as they continue to stockpile the commodity at the current low prices but as we've noted before the sharp decline in oil may be underappreciated by the market as a tool of stimulus for the Chinese economy.
The massive decline in production costs for the manufacturing based Chinese economy should at very minimum keep growth steady this year and may actually provide an upside surprise of 0.5% to the country's GDP if they remain at these levels for the rest of 2015. All of this suggests that AUD/USD may now stabilize at current levels despite the sharp decline in raw material costs, and indeed the pair appears to be forming a near term bottom at the 8000 figure. Only a further drop in oil below the $40/bbl mark could push the unit through that key support level for the time being.
In North America today, the calendar is once again quiet with the key data of the week set for release tomorrow as the market looks at US Retail Sales. For today choppy is likely to be the theme with equity flows controlling the price action in FX once again.