China’s Inflation In Line With Expectations

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(As written on BTInvest, 10 November 2014. Click here to read from BTInvest.)

On Monday morning, the National Bureau of Statistics in China reported that the Consumer Price Index (CPI) remained unchanged at an annual rate of 1.6 percent from the preceding month. The figure was in line with the median estimate of 38 economists polled by Bloomberg.

Late last week, China reported that overseas shipments rose by 11.6 percent in October from a year earlier, beating the 10.6 percent climb predicted by economists in a Bloomberg survey. Imports, however, expanded 4.6 percent, down from growth of 7 percent in September and trailing the 5 percent increase projected by analysts. Exports rose 15.3 percent in September.

With the Asia-Pacific Economic Cooperation (APEC) Summit in focus, most eyes are on China, as the Summit is held in Beijing. Speaking to executives at a CEO gathering in Beijing recently, President Xi Jinping outlined that outbound investment will total USD1.25 trillion over the next 10 years. Calling a slowdown part of the new normal in China, Xi said his government is weaning the economy from a dependence on exports and infrastructure and making domestic consumption the key growth engine. He said the country expects to import over USD10 trillion of goods over the next five years – a further benefit to China’s partners.

For most market watchers, it is not difficult to see that President Xi is pushing the Free Trade Area of the Asia-Pacific in response to the US-backed Trans-Pacific Partnership, which excludes China.

In the US, the dollar extended losses against major and emerging-market peers in Asia after US non-farm payrolls data stoked speculation that the Federal Reserve will keep interest rates lower for longer. US employers added 214,000 workers to payrolls in October, holding above 200,000 for a ninth straight month though trailing the 235,000 increase projected by economists. The jobless rate fell to a six-year low, coming in at 5.8 percent.

The Fed ended its third round of bond purchases in October, citing economic gains. While the US economy has strengthened, with gross domestic product expanding at an annualised 3.5 percent rate in the third quarter, inflation indicators have remained low. The Fed funds rate remains in the zero to 0.25 percent range.

Gold continues to drop as hedge funds made their biggest cut of the year in bullish gold wagers as prices tumbled to the lowest since 2010. The net-long
position in gold fell by 25,226 contracts to 45,072 futures and options in the week ended 4th November, according to data from the US Commodity Futures Trading Commission (CFTC). Long holdings tumbled 12 percent, the biggest drop since December 2012.

Assets in the SPDR Gold Trust, the biggest bullion ETF, dropped 1.9 percent last week, a third straight decline. Investors sold 14.4 metric tons of bullion held through exchange-traded products last week, trimming assets to the least since August 2009. Gold has so far dropped 15 percent from this year’s high in March 2014. There’s a chance that gold will drop to USD1,000 an ounce by the end of the year as the cost of oil tumbles, although purchases in Asia (most notably India and China) will help to support prices a little.

Top News This Week

Canada: Manufacturing Sales m/m. Friday, 14th November, 9.30pm.              
I expect figures to come in at 1.3% (previous figure was -3.3%).

USA: Retail Sales m/m. Friday, 14th November, 9.30pm.              
I expect figures to come in at 0.2% (previous figure was -0.3%).

Trade Call

Short EUR/USD at 1.2500

On the H1 chart, EUR/USD is retracing into a range after a 400 pip fall since 29th October. The divergent monetary policies between the Fed and the European Central Bank are still in play. There is still room for the euro to weaken as the ECB continues its QE.

An entry is taken at the round number of 1.25 and a stop loss of 40 pips ias placed above the previous high. We will have two targets on this trade, exiting the first position at 1.2460 and the second one at 1.2420.

Entry Price = 1.2500
Stop Loss = 1.2540
1st Profit = 1.2460
2nd Profit = 1.2420

Mario Singh is the Director of Training and Education at FXPRIMUS, Asia’s fastest growing brokerage firm.

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