Summary:

• Asian equities have had a mixed session so far with Chinese indices climbing, and others falling
• Chinese inflation lost momentum last month possibly due to the Lunar New Year, PBoC Governor weighs in on a US-China trade spat
• Japanese data beat expectations, and should be the yen supportive 

Tuesday turned out to be conducive to global equities which benefited from lowered frictions between the US and China following Xi Jinping speech. Wall Street managed to close the day with noticeable gains with the NASDAQ (US100 on xStation5) climbing over 2% being the best index. On top of that, improved risk sentiment propelled other risk-correlated assets such as Antipodean currencies and commodities. However, the beginning of Wednesday’s trading seems to reverse some of yesterday’s moves as both AUD and NZD are trading lower at the time of writing but not too much to be honest. It’s worth mentioning the fresh remarks coming from the Reserve Bank of Australia Governor Philip Lowe who said a while ago that the board does not see a strong case for a move in the near term albeit the next one will likely be up, not down. This was the sole comment of note as the remainder of his speech was actually the same as the RBA statement.

Chinese consumer price growth eased last month mainly on the back of the fading Lunar New Year effects. Source: Macrobond, XTB Research

Do notice that despite a successful session in the US yesterday Asian investors have not rushed to buy shares yet as both the Japanese NIKKEI (JAP225) and the Australian benchmark (AUS200) are trading a few tenths of percent lower just a while before the close. In turn, the Chinese indices are rising over 0.5% at the same time for all a disappointment seen in the domestic inflation report. Annual CPI came in at 2.1% in March falling short of the consensus pointing to 2.6%, and down from 2.9% in February. PPI growth moved down to 3.1% from 3.7% as well missing expectations at 3.3%. Having said that, one needs to be aware that China’s policymakers have focused recently more on cutting undue leverage instead targeting inflation. Either way, there is no doubt that China is not exporting inflation abroad, but it may change going forward if a trade battle deepens. In this respect it’s worth mentioning the latest comments from the PBoC Governor Yi Gang who assured that China will not devalue its currency in order to deal with the US trade moves, instead it’s pushing forward convertibility for the renminbi.

The Australian dollar could be prone to move lower after drawing a bearish engulfing at a H4 time frame. Do notice that the candlestick occurred in the vicinity of an important supply area therefore its importance seems to be higher. Until the price keeps moving below 0.7770 one may look for a pullback at least toward 0.7720. Source: xStation5

While Antipodean currencies have been on the back foot so far today the Japanese yen has gained traction a bit in the aftermath of the robust data from the real economy. Namely machinery orders grew 2.4% yoy in February vastly beating the consensus at a flat reading, and even as it’s a second tier print it bodes well for trade and investments reaffirming solid export momentum. At the same time PPI came in above forecasts showing 2.1% while 2% had been anticipated. It suggests that price pressures in Japan are slowly but surely rebuilding, and even that it may take a lot of time to finally reach the target the Bank of Japan ought to welcome these numbers.

Machinery orders increased in February in defiance of expectations while PPI growth lowered less than forecast in March. Source: Bloomberg

In a nutshell, the data seems to slightly support the yen nevertheless the Japanese currency should be driven more by external factors going forward. Even as the JPY remains among the most undervalued currencies in the G10 basket it does not have to feed into broad-based strength, and perhaps selective purchases could be a better choice. Looking at the CADJPY cross one may suspect that the resumed upward trend could be unfolding toward a 50% retracement after the pair drew a double bottom at a weekly interval.

The CADJPY seems to be en route to higher levels after drawing a double bottom pattern. Source: xStation5