Asian Markets Capped By Weak China Trade Data, Italy And Fiscal Cliff

While Asian markets opened the week mostly higher on US employment data, gains were capped as weaker than expected trade data from China undermined the optimism of recovery. The forex markets are relatively steady as most pairs are staying in range while mild weakness is seen in the euro.

China's trade surplus shrank to USD 19.63b in November comparing to expectation of $26.85b. Exports rose merely 2.9% yoy, way below expectation of 9.6% yoy rise and a sharp deterioration from October's 11.6% yoy rise. Imports were flat yoy against expectation of 1.9% yoy rise and a 2.4% yoy rise in October. The data revealed weak global demand, and reminded people that China is still facing risks of sluggish demand in both Europe and US.

Also on the data front, New Zealand manufacturing activity rose 1.6% in Q3. Japan GDP was finalized at -0.9% qoq in Q3, confirming recession. GDP deflator was revised down to -0.8% yoy. BSI large manufacturing index dropped to -10.3 in Q4. Consumer confidence dropped to 39.4 in November. Australia home loans rose 0.1% in October. German trade balance, eurozone Sentix investor confidence and Canada housing starts will be released later today.

In Europe, Italian prime minister Monti said over the weekend that he would resign after approval of 2013 budget after former prime minister Berlusconi stepped up his attacks on Monti. The budget and expected to be passed by Christmas and elections would the be haled within 70 days after parliament dissolutions, that is before the end of February. Given Monti's pro-euro stance, political uncertainties in Italy is weighing mildly on the common currency.

In Greece, it's reported that a finance ministry official was quoted that the EUR 30b bond buy-back program went well and is close to completion. Greece is expected to use EUR 10b, borrowed from ESM, to buy back debt with face value of EUR 30b, and thus reducing its net debt by EUR 20b. And the program is essential to ensure release of the next tranche of bailout fund this month.

In US, president Obama and house speaker Boehner met on Sunday again on fiscal cliff issue. A statement was issued acknowledging the meeting and said that "we're not reading out details of the conversation, but the lines of communication remain open." That is, apparently there is no idea on what have been discussed, what progress were made, with now just 20 days left to solve the issue. Last Friday, Boenher complained that "no progress" and criticized Obama of having "wasted another week." And he said none of the Republican's proposals would be possible if Obama insists on "my way o the highway."

Latest CFTC reports showed that euro net shorts dropped to 32.8k contracts on December 4, down from prior week's 66.7k. That was indeed the lowest net short number in 2012. Note also that was accompanied by a jump from 1.2661 to 1.3216 on December. While EUR/USD is still staying in range, the sharp drop in net shorts is a sign that traders are flipping their sideway as recent consolidations from 1.3171 continued.

And that's a sign of strength ahead. Yen net shorts rose for another week to new 2012 high of 90.3k. Sterling net longs rose to 27.3k but revealed no clear direction. Australian net longs rose to another 2012 high of 92.2k. But Canadian dollar net longs dropped for another week to 57.1k, comparing to September's high of 111.9k.