Asia Today: China issues - growth, ties with Japan hit risk again

We had a slow start to the week in Asia with no data events to spur activity. Currencies traded with a slight risk-off feel to them with equity markets floundering small in the red.

Strained relationships between Japan and China appear to be one of the drivers of the risk-off mood with contact at official levels being cooled (ironically China cancelled ceremonies linked to the celebration of 40 years of China-Japan relations). In a Wall Street Journal interview PM Noda noted that Japanese companies are facing customs-clearance delays in China and warned that other countries may be vulnerable to similar tactics.

In addition, another WSJ article quoted a PBOC adviser that there were no signs of China rebounding in Q3 and domestic investment was unlikely to expand dramatically in the near-term. A senior housing official also commented that the country plans to continue implementing strict property controls. The China Beige Book report, a private survey modeled on the Fed’s Beige Book, reported that China’s manufacturers and retailers are less optimistic about sales in the third quarter than they were three months ago, despite the PBOC’s rate cuts in June and July. The report suggested a deterioration in net hiring and a sharp pickup in job shedding amid a background of weakening domestic demand, particularly in the retail sector.

We saw relatively steady markets on Friday with EURUSD gyrating a few times round the 1.30 axis. Increasing concerns that Spain was getting closer to a full bailout deal kept the single currency capped however while IMF reports that the Troika’s discussions with Greece remained productive prevented too serious a downside test. There was not much on the data front to affect markets, though the UK’s highest ever borrowing in August helped cap GBP’s recent bullish desires.

There were no US data releases on Friday but Canada’s CPI data for August remained subdued at the headline – below forecast on m/m and y/y prints (0.2 percent and 1.2 percent respectively) but this had little impact on the CAD. Wall Street had a mixed session with the DJIA and the S&P finishing the first post-FOMC/ECB week with losses of 0.1 percent and 0.4 percent respectively.

Data Highlights

• CA Jul. Wholesale Sales out at -0.6% m/m vs. -0.2% expected and revised -0.3% prior
• CA Aug. CPI out at +0.2% m/m, +1.2% y/y vs. 0.3%/1.3% expected and -0.1%/+1.3% prior resp.
• CA Aug. BOC Core CPI out at +0.3% m/m, +1.6% y/y vs. 0.3%/1.5% expected and -0.1%/+1.7% prior resp.

Upcoming Economic Calendar Highlights

(All Times GMT)

• JP Supermarket Sales (0500)
• SI CPI (0500)
• GE IFO Surveys (0800)
• UK BOE’s Statement from Financial Policy Committee (0830)
• US Chicago Fed Activity Index (1230)
• US Dallas Fed Manufacturing Activity (1430)
• US Fed’s Williams to speak (1930)

For more information on today’s events, please visit the financial calendar