IB FX View
Sino pessimism wanes after strong slew of data
Friday September 11, 2009
What the world took away from Chinese exporters, the government appears to have been successful in replacing. News today that the domestic mainland economy is firing ahead on all cylinders has restored fortunes to the prospects of the entire Asian region, in turn sending the dollar lower as investors once again eye yields and equity market returns greater than the cost of borrowing through an extremely inexpensive greenback. The U.S. unit reached a new low for the year at $1.4635 per euro while the fortunes of the yen took a boost as Japanese corporations began the quarterly process of repatriating foreign currency earnings back to head office.
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It was only yesterday that Chinese Premier, Wen Jiabao expressed concern that it was hardly the right time to retract the government’s stimulus measures and he refused to curb his stimulative path. Out of Beijing today come fresh stats that have set the bulls running once again in the Asian region in hopes that Chinese good fortune will spill over into greater demand for raw materials as consumer demand is revived.
Industrial production was 12.3% higher in August than a year ago, exceeding forecasts. The equivalent of $60 billion in new loans were granted, which compares to an equivalent $52 billion in July. Retail sales were also higher by 15.3% in August compared to the same time in 2008. The news buoyed regional sentiment and the 2.2% gain for the Shanghai composite index for Chinese stocks brushed aside fears of asset-price inflation. But the fact that exports declined at a year-over-year pace of 23.4% emphasized the Chinese predicament. The rally in global stocks tells us that investors are growing less concerned that the bridge between Chinese stimulus measures and the ultimate replacement by global demand will finally be built.
The dollar slumped once again and against the Japanese yen today only buys ¥90.65from Thursday’s ¥91.71. The yen strengthened against the euro to ¥132.29 from ¥133.78 while against a strong British pound the yen rose to ¥151.29 from ¥152.84.
The dollar’s fortunes were temporarily reversed after a stronger reading of confidence from the preliminary Michigan sentiment index coming in at a strong 70.2 and well above the 67.5 consensus. However, the euro is now once again firming as dollar appetite fades. What is amazing, however, is the dollar’s weakness in the context of the very strong appetite at the U.S. bond and note auctions. Weekly auctions that finished Thursday sapped a further $70 billion from investors and bid-to-cover ratios indicate extremely healthy demand as the dollar declines. Where are all the dollars coming from?
U.K. producer prices rose to help support the view that the Bank of England and the British treasury have been successful in fighting the recession. Prices for goods leaving the factory gate rose at a 0.2% pace in August making that a sixth consecutive monthly increase. The pound rallied against the dollar to $1.6705 while it added to 87.48 pence per euro.
The Australian dollar reversed early morning losses to stand at 86.52 and so close to yesterday’s 52-week peak. The Canadian dollar continues to strengthen at 93.10 as some analysts expect to see parity later this year as the groundswell of recovery takes place.
Andrew Wilkinson
Senior Market Analyst ibanalyst@interactivebrokers.com
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