Summary:

  • Major US indices tumbled roughly 4% on Thursday, Asian investors followed
  • Chinese inflation matched forecasts being well below the PBoC target though
  • RBA’s statement on monetary policy suggests too strong AUD could be a snag

The final session in Asia did not bring long-awaited relief as major equity markets witnessed a huge sell-off taking cue from their US counterparts. Let’s pin down that US stocks had another hideous day with the Dow Jones (US30 on xStation5) plunging as much as 4.15%, other indices saw massive falls as well, the SP500 (US500) plummeted 3.75% and the NASDAQ (US100) dropped 3.9%. Do notice that the agreement on a funding bill was not a sufficient factor to prevent stocks from declining. What’s more, while the US stocks declined on Thursday, the 10Y yield managed to remain above 2.8% (it’s trading above 2.83% at the time of writing). One may argue that today’s session in the US could be critical as it would set moods ahead of the opening in Asia on Monday. Finally, it needs to underline that heavy falls were seen again just on stocks, currencies or bonds were decisively less volatile suggesting no widespread panic. The NIKKEI (JAP225) fell 2.3%, the Australian benchmark (AUS200) slid 0.9% while the two Chinese indices are still trading being ca. 5% lower on the day.

link do file download linkThe Chinese Hang Seng (CHNComp) saw the largest weekly drop since July 2015. The price is nearing an important technical support in form of an ascending trend line at around 11350 points. If bears smash this level, they could have an open way for deeper falls ending the latest wild rally at the same time. Source: xStation5

Apart from another ugly day across global stock markets it’s worth mentioning the Chinese inflation data for January which turned out to be in line with forecasts. CPI came in at 1.5% yoy (a drop from 1.8% yoy compared to the previous month) while PPI showed a slowdown from 4.9% yoy to 4.3% yoy. Both reading had a little impact on markets, however, they illustrate that the PBoC is still short of its inflation goal placed at 3%.

link do file download linkChinese inflation slowed down in the first month of the year matching forecasts though. Source: Macrobond, XTB Research

Finally, let’s take a closer look at the FX market where the British pound is by far the strongest currency being more than 0.3% higher against the greenback. However, the pound erased a huge part of its post-BoE gains yesterday so it’s trading well below a 1.40 handle right now. On top of that we got the RBA’s statement on monetary policy underlining that the higher Australian dollar would dampen domestic growth and inflation. There were remarks that household income growth remains slow and if that persists it would constrain consumption spending going forward. The document stressed a relative high level of household debt which could be used by the RBA as an excuse to rise rates very gradually. Overall, the statement does not appear to differ from the current message of the Reserve Bank of Australia conveyed during meetings, hence the AUD remains little changed.

link do file download linkTechnically, the AUDUSD continues sliding after topping above 0.81. If the US dollar keeps on rebounding in the short-term, it could push the pair yet lower. The nearest support line might located at 0.7755 and when bears break it through, another falling wave could kick off. Source: xStation5