In a move that could have an impact on US-China trade negotiations, China sold euro-denominated bonds, writes Adam Button.
China borrowed in euros for the first time in 15 years on Tuesday as President Xi Jinping signaled increasing cooperation with France. The euro lagged on the day while the Australian dollar led the way. Odds of a Reserve Bank of New Zealand rate cut next week rose after a small miss in jobs numbers.
China sold euro-denominated bonds for the first time since 2004 in a quiet move that is highly significant and telling. The sale was only $4 billion of seven-, 12- and 20-year bonds but there was extremely high demand, around €20 billion worth. With that, the bonds priced about 20 basis points below China's initial target, according to a report.
The move is the culmination of a handful of factors. For forex traders, the big one is that the euro is increasingly the preferred funding currency. Rates are as low as Japan but without the same levels of indebtedness and without the risk of a single government.
It also signals the increasing cooperation of China and Europe. French President Emmanuel Macron and Chinese President Xi met on Wednesday and the Chinese President touted multilateralism and pushing relations to a new level. Italy has embraced the belt-and-road initiative.
Finally, it signals China's efforts to diversify its FX and economic exposure away from the United States. While it underscores the decoupling theme, it also highlights the battle for Europe and the old institutions like the World Trade Organization.
With this demand and the near-certainty that Eurozone rates will remain pinned to the floor, expect more countries and corporates to issue euro-denominated debt and promptly invest it elsewhere. That will keep the downward pressure on the euro but could also give it further positive potential during risk-off phases.
Early in Asia-Pacific trading, New Zealand Q3 unemployment rose to 4.2% compared with 4.1% expected. Average hourly earnings rose 0.6% compared to the 1.0% year-over-year rise expected. That miss pushed the odds of a New Zealand rate cut next week to 60%.
In other news, speeches today from U.S. Federal Reserve officials include Chicago Fed's Evans, New York Fed's Williams and Philadelphia Fed's Harker.
EIA oil inventories are later in the afternoon. Where is the next high for stock indices? If you're still short and partly hedging them, at which point would you close the longs?
Adam Button is co-owner and managing director of ForexLive.com and a contributor at AshrafLaidi.com. You can see Ashraf’s daily analysis at www.AshrafLaidi.com and sign up for the Premium Insights. Ashraf's Tweet on indices here.
