Dismal Data Cools Chinese Markets

Asian markets were higher today, but sentiment took a turn for the worse after China’s trade data was well below expectations. Exports out of China fell 3.1 percent from the previous year. This is the first decline since January 2012 and was well below economist forecasts of a 4 percent rise. Import data also came in lower than expected. The reading showed it was 0.7 percent lower, well below the expectations for an 8 percent gain.

European markets got a boost from good earnings reports from Alcoa and the news that Latvia was accepted into the Euro zone. Also, Joerg Asmussen, an ECB policy maker, gave a speech that said Europe should accelerate plans to force private investors to help with bailout costs of failing banks. He thinks private shareholders should be helping by January of 2015.

STOCKS
The Australian S&P/ASX fell off its five week high and the Nikkei retreated from its six week high. The Shanghai Composite rose 0.4 percent in a choppy session. In South Korea the Kospi is now below 1830 points.

European markets were also up on Tuesday as the FTSE closed up 1.1 percent and the German DAX jumped 1.2 percent. U.S. markets rallied for the fourth straight day with S&P just below its closing high of 1669.16. The NASDAQ had its best closing since October 2000 thanks to a positive start to the earnings season.

CURRENCIES
The Euro weakened overnight, please see the EUR/USD chart below, after the ratings giant S&P downgraded Italy’s debt rating from BBB+ to BBB. This is a level 2 notches above junk status. The S&P stated there could be another cut later this year. “Further worsening of Italy’s economic prospects coming on top of a decade of real growth averaging minus 0.04 per cent.”
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The Aussie (0.9143) is still seeing some short covering. However, we sees strong resistance standing at 0.9227. We have seen the Aussie appreciate with gold, but the continued weakness noted in copper should be of concern.

COMMODITIES
We are seeing a troubling rise in crude prices and a weakness in copper that could hurt export currencies. Brent Crude (WTI) is at 107.78 with resistance now at 110.00. While above 104.00, WTI remains bullish. Copper remains weak. It is now at 3.0435 and has failed, a number of times to go above 3.10. A fall below 3.00 could be disastrous for currencies like the Aussie.

TODAY’S OUTLOOK
The Bank of Japan will begin its policy meeting later today with a decision being announced on Thursday. We expect no big changes to the current monetary policy as they should wait until after the upper house elections on July 21 before making any big moves.