All is not well in Asia

December 8, 2014

It has been a massive day of data misses in Asia, with economic numbers from both China and Japan printing well below expectations. Prior to this the Nikkei jumped to a new 7.5-year high above 18,000, albeit briefly, on the back of a surge in USDJPY after an incredible US jobs report on Friday. Not only was the headline jobs number higher than the market’s wildest expectations (321K jobs were created in November), the inner workings of the report were also largely positive (average hourly earnings rose 0.4% m/m).

Japan’s data misses estimates

Weak Japanese economic figures quickly put an end to the rally in the Nikkei. Final GDP figures for Q3 were released and they were even worse than the preliminary numbers and way worse than the improved expectations of the market. GDP fell 0.5% SA q/q last quarter, missing an expected 0.1% fall and a preliminary figure of -0.4%. It was a similar story on an annualized basis, with GDP falling 1.9% SA q/q (expected -0.5%; prior -1.6%). Still, this is an improvement from Q2’s tax hike affected numbers.

China’s soft trade numbers increase the likelihood that Beijing will loosen policy further

In China, November’s trade surplus jumped to its highest level on record at $54.47bn. This was largely the result of plummeting imports, which fell 6.7% y/y, completely missing an expected 3.8% rise. Exports also failed to live up to expectations with a measly 4.7% y/y gain (expected 8.0%). Both sides of the trade equation should be concerning to Beijing. The soft import number reaffirms a lack of domestic demand in China (it’s worth noting that this is partly due to weaker commodity prices, particularly for oil), while the export data indicates a lack of demand for Chinese goods. The former is expected to support growth in the future and the latter supports growth now. Overall, it reinforces our belief that more stimulus is on its way from Beijing, possibility in the form of a RRR cut before year-end.

AUD and NZD react poorly to China’s economic data

Both the aussie and kiwi took a hit on the back of today’s disappointing Chinese economic data. NZDUSD and AUDUSD were already on the back foot after Friday’s stunning US jobs report, and today’s numbers haven’t helped. AUDUSD is getting very close to the key psychological zone around 0.8000. A break of this level would likely be a big blow for the pair. NZDUSD is also suffering and the pair created a new 2.5-year low on the combination of USD strength and China’s soft economic data.

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