Asia Today: Was it Spanish bank bailout or China data? Risk is on

Publication date: 11 June 2012
Author: Andrew Timothy Robinson, Saxo Bank

Was it the China data or the proposed Spanish bank bailout that turned risk around? Either way, Asia got currencies and stock markets off to a rip-roaring start to the week.

Rumours that euro group members reacted favourably to Spain asking for funds to assist a recapitalization of its banks became a more solid fact at the weekend as headlines suggested a bailout (of sorts) was announced. While there are still many questions surrounding the bailout terms and conditions (Where are the funds? What about collateral that Finland demands in funds come from EFSF? Is the ESM up and running? to name a few), an excessively short EUR market (latest data released at the weekend show new record short positions as at last Tuesday) kept the single currency supported during the Asian session.

The EUR gapped more than one big figure higher versus both the USD and JPY at the open and, having touched 1.2670, consolidated in a 1.2620-40 range for the rest of the session.

Also at the weekend, China unleashed its slew of May data. CPI continued to fall with a 3.0 percent y/y print (lowest since June 2010) for the month and PPI suggesting there are no pipeline pressures (-1.4 percent y/y versus -1.1 percent expected and -0.7 percent last). Industrial production was below forecasts at 9.6 percent y/y (the second month below 10 percent) but marginally better than the previous month while retail sales slipped to +13.8 percent y/y from +14.1 percent. Trade data showed a strong rebound from April’s disappointing number with exports growing 15.3 percent y/y and imports up 12.7 percent. This resulted in a wider trade surplus of $18.7 bln.

So, the fears of disastrously dismal data after the PBOC surprised with its first rate cut in 3 years last week appear to be unfounded, at least for the time being. While slower production and retail sales were a cloud, the other better data releases has led many to believe that last week’s move was more aimed at spurring more domestic consumption to prevent the current economic slowdown from morphing into a hard landing for the economy.

Singapore’s export data for May was slightly better than expected but a hefty downward revision to April’s data removed some of the shine. Non-oil domestic exports rose 3.2 percent y/y but April’s 8.3 percent print was downgraded to just +1.7 percent. In addition, the month-on-month figures were less encouraging with exports down 2.1 percent on a seasonally-adjusted basis.

On Friday, a Spanish downgrade by Fitch and comments from ECB’s Nowotny on zero interest rates kept the EUR under pressure for most of the session but heightened rumours of a Spanish bank bailout (see above), and profit-taking into the weekend, saw the EUR bounce strongly into the close.

Data releases on Friday held few surprises, with Canada’s employment change and unemployment rate in line with forecasts (7.3 percent and +7.7k respectively) while the US trade balance deficit narrowed to $50.1 bln ($52.6 bln last, $49.5 bln expected) while wholesale inventories increased 0.6 percent m/m.