Market Drivers for April 13, 2016
Europe and Asia
CNY: Trade 29.8B vs. 33.4B
EUR: IP -0.8 vs. -0.7
North America
USD: Retail Sales 08:30
USD: PPI 8:30
The dollar strengthened in Asian and early European trade, boosted by a rebound in Chinese exports and better risk appetite in stocks.
After four straight days of holding the 108.00 level USD/JPY finally saw some buyers and cleared the 109.00 figure in early European dealing as the Nikkei rose more than 2% while the DAX followed with a greater than 1% gain.
China's Trade Balance came in lower than expected at 29.8B versus 33.4B eyed but it was the rebound in exports that got the market excited as they jumped higher by 11%. Still, even Chinese customs officials noted that part of the reason for the jump was the very low base of comparison from the last release. Imports meanwhile declined by -7.6%, a smaller contraction than the -10.0% projection and a vast improvement from the double digit decline of -13.8% over the period prior.
The news of out of China was viewed with relief as it suggests that the contraction of demand in the world’s second largest economy has slowed and that risks of a hard landing have diminished. The positive risk flows were quickly translated into a USD/JPY rally which is now grossly oversold and remains vulnerable to a short squeeze.
Elsewhere, the European eco calendar was quiet with only EZ IP on the boards and that report missed its mark, printing at -0.8% vs. -0.3% eyed. The EUR/USD drifted lower throughout the night mainly on pro-dollar flows, and fell through 1.1350 support by early European dealing.
In North America today the market will get a look at US Retail Sales with the consensus view calling for a small jump to 0.3% from -0.1% the month prior. An improvement in consumer spending would certainly go a long way to helping dollar bulls as it would alleviate concerns of a slowdown in US growth. Retail Sales have been a sore disappointment to the market, with the report revised down 5 out of the past 6 months and may be a key reason why the Fed has been reticent to hike rates despite healthy employment growth.
So far, US employment growth has not really translated into an uptick in wages and spending, which is why today’s report could be a factor for the market. A better than expected print could spark speculation that the Fed could move on rates as early as June versus the current assumption that it will remain stationary until end of the year. With USD/JPY still near its lows, a positive print today could quickly push the pair through the psychologically key 110 level as the day progresses.