Key news
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In China exports and money supply growth beat expectations and inflation eased marginally in line with expectations ? less pressure for imminent easing.
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US Treasury Department postpones foreign exchange policy review.
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Spanish Finance Minister does not appear in a rush to ask for assistance.
Markets Overnight
The Chinese data released since Friday have been encouraging but this has not been rewarded by the market. China?s exports in September beat expectations increasing 9.9% y/y (consensus 5.5%) from 2.7% y/y in August, see Flash Comment China ? Encouraging exports but imports remain subdued, 14 October. It does not change our view that China?s exports will face headwinds in the coming months but the September data suggest that weak exports should weigh less on growth in the current quarter. Growth in money supply M2 in September also accelerated faster than expected to 14.8% y/y (consensus 13.7% y/y) from 13.5% y/y in August, see Flash Comment China ? Credit and money supply expanding faster, 14 October. Data released Friday also showed stronger growth in broad credit measures, albeit the bank?s local currency loans came in slightly below expectations. Finally, CPI inflation in September eased to 1.9% y/y in line with expectations from 2.0% y/y in August, mainly on the back of lower food prices, but this will be reversed in the coming months when we expect inflation to climb above 2.5% y/y on the back of higher food prices. These data have eased the pressure for imminent monetary easing in China, even though the GDP and industrial production data released later this week are expected to remain subdued.
Late Friday evening the US Treasury department announced that the publication of its bi-annual review of its major trading partners exchange rate policy will be delayed until after the US presidential election. The report was scheduled for release today but has become a hot potato in the election campaign with Republican candidate, Mitt Romney, promising to label China a currency manipulator if he is elected. The IMF and World Bank annual meeting closed this weekend and left the impression that there is no clear international consensus on how to move ahead. The Spanish Finance Minister, Luis de Guindos, at a press briefing in Tokyo did not indicate Spain is in a rush to ask for ESM assistance.
There is a slightly negative risk sentiment in the market this morning. US stock market closed moderately lower and this morning most Asian stock markets are also moderately lower, however with Nikkei bucking the trend. US bond yields have edged slightly lower since market closed in Europe Friday. In the FX market EUR/USD has declined 0.4% since Friday afternoon while the Scandinavian currencies are trading largely unchanged. Brent crude oil is 0.6% lower on possible reopening of negotiations with Iran.
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