In the Lord of the Rings movie series (though not in the books), the “Eye of Sauron” is a massive spotlight that scans the horizon for threats to the evil Sauron’s fortress, Barad-dûr. Much like this mythical eye, the collective eye of the market can rapidly shift its focus from one region to another, following the action across the global market landscape.
With little in the way of US and European economic data early this week (barring the UK employment report, which my colleague Fawad Razaqzada covered here), the eye of the market has shifted to the Asian-Pacific region, where we’ve seen a number of second-tier economic reports.
As we discussed yesterday, the first noteworthy release was the RBNZ’s Financial Stability Report. While this semi-annual report did note rising risks in the housing and dairy sectors, it still portrayed a less-dovish-than-anticipated central bank, highlighted by the key line “there is less scope for monetary policy easing to offset a sharp rise in funding spreads.” Of course, any time a central bank mentions “less scope for monetary policy easing” (i.e. less chance of an interest rate cut), the currency in question will tend to rally, and that’s exactly what we saw last night. The NZD/USD has rallied off support in the .6500 area to trade around .6560 as of writing.
The market’s eye also saw a couple of other economic data updates from the Asian-Pacific region. In Australia, Consumer Sentiment rose 3.9% to 101.7, which represents a 6-month high in the indicator heading into the crucial holiday season. Meanwhile, Japan’s Tankan surveys of business confidence came in weak, with the Manufacturing survey falling to just +3 (a 2.5-year low) and the non-manufacturing survey falling to +22 (an 8-month low).
Finally, and perhaps most importantly, China’s economic data came in a bit soft with Industrial Production printing at 5.6% y/y (vs. 5.8% expected), Fixed Asset Investment coming in at 10.2% (as anticipated), and Retail Sales showing a 11.0% growth y/y (above the 10.9% consensus estimate, but note that consumption is a relatively small portion of the Chinese economy).
Collectively, these reports suggest an ongoing economic slowdown in the region, though perhaps better than many had feared. As always, China is the economic engine that powers the entire Asian-Pacific region, so traders should be particularly mindful of data from The Red Dragon. Moving forward, the “Eye of the Market” will likely focus in on the Australian employment report (expected to show a 14.8k increase in jobs, with unemployment anticipated to hold steady at 6.2%) before flicking back to the Western world for comments from ECB President Draghi and six (!!) separate Fed speakers on Thursday, followed by Friday’s US retail sales report.