MoneyWisee

Asia Snapshot

It has been another roller–coaster couple of days. Risk assets attempted to rally after the London close, only to sell-off aggressively into the NY close. Having pared losses to ‘just’ -1.0%, the S&P500 closed down 4.42%, providing another poor lead for Asia. Early liquidation of Cross/JPY (suspected to be Japanese leveraged retail positions) was compounded by a ‘soft’ Australian employment report. The market was caught short risk as an essay by a China scholar at a Chinese think tank argued for a cut to the RRR in H2 accompanied by a widening in the USD/CNY daily trading band from +/-0.5% to +/-1.0%.

The story prompted a nasty short squeeze in risk assets from its lows to session highs. S&P futures jumped from -1.0% to +1.6% and the moves in FX have been a mirror image of that. Notwithstanding the fact liquidity is at a premium, we are of the view the squeeze in risk in response to the China story was something of an over-reaction.

CAD Snapshot

We are below consensus for the CA trade deficit (cons: C$0.8bn). The continued decline in crude oil prices and decrease in vehicle production due to supply‐chain issues are expected to weigh more heavily on exports than imports. Machinery and equipment exports are also expected to retrace a portion of the strong gains in May.

AUD Snapshot

The July employment report was soft on almost all fronts with total employment falling for the fourth time in eight months (-0.1,000 vs. cons: 10,000) and the unemployment rate rising 0.2% to 5.1%, its highest level since November 2010. While the unemployment rate can move around from month to month (although much more than 0.2% is unusual) it is far less volatile than headline employment and we think it provides the best gauge of the underlying health of the labour market and the economy in general.

Leading indicators of the labour market point to a further step down in employment generation in the months ahead and if the unemployment rate begins to shift much higher on a sustained basis, regardless of what is going on globally, it would raise questions over just how appropriate the current mildly restrictive stance of policy is.