The barometer for today in forex markets is the Canadian dollar, writes Bob Savage.
Trading markets is all about sequencing. You have to have a calendar and a keen sense of expectations to get through the noise of news and events. Today is Fat Tuesday, the end of Carnival, and the last day before the start of Lent with Ash Wednesday. While few will see this calendar as important to markets, it does make the number of people paying attention smaller if only because of the holiday atmosphere from Brazil to Germany.
There is no joy for risk today as the unwinding of expectations about US-China trade deals and global growth hits the complexity of reality. China’s National People’s Congress started today, and the 2019 GDP target released at 6% to 6.5% from around 6.5% last year. A 2 trillion yuan tax cut was also announced with VAT reductions and a budget deficit increase goal of 2.8% from 2.6% in 2018. All that seems skinny not fat and while China shares gained, most of the rest of the world is in the red.
The economic data today was all about services and most of them were better with Japan growing, Australia getting worse, China getting worse, Europe stabilizing and the UK getting worse. This makes the hope for a milder Q1 soft-patch to continue but in a modest way leaving anyone looking for value hoping for something bigger out of the United States.
The barometer for today in FX is the Canadian dollar with the Bank of Canada next on the list tomorrow for sounding dovish against geopolitical issues like China/Huawei, commodities and politics. The data and the BOC stalwart tightening bias seem at odds and in play with markets expecting something to give and the escape value for pressure is the currency first with 1.34 the pivotal resistance.
Does the China GDP target at 6.0-6.5% matter?
There is a sense of expectations being met today but nothing more given the start of the China National People’s Congress and the announcements on plans to bolster the economic performance after a sharp slowdown – blamed on both US-China trade issues and the credit tightening induced by policy to deleverage the shadow banking sector. Markets are watching to see if the efforts by China work and with a nominally positive U.S. trade deal expected, many are pricing in a recovery of sorts. This makes the 6% bottom seem almost modest except for the fact that the pressures on the Chinese continue to be about debt and the shift from corporate to government exposures maybe something to also fear particularly if foreigners don’t help with enough capital inflows.