Intraday Market Thoughts

Risk Appetite Rises Ahead of Key Chinese Data

by Ashraf Laidi
May 10, 2011 23:32

Reports of a new Greek bailout spurred a straight-forward risk on day with AUD and CAD leading the way while CHF and JPY lagged. A margin hike for oil traders initially hurt crude but it later rebounded as commodities made broad gains. China jumps to centre stage in Asia-Pacific trading with April data on CPI, retail sales and industrial production on the docket.

Dow Jones reported that Greece will get another 60 in bailout funds. The report was denied but the market bought the rumour and it helped to stabilize EUR/USD around 1.4380. The broader effect was to boost risk appetite and the S&P 500 rose 0.8% for the third consecutive gain.

For tactical trades related to risk appetite, gold, silver and GBP/USD, see today's Premium analysis here:

The CME announced oil margin hikes late Monday but the effect was minimal. If the goal is to knock down oil prices, we dont see margin hikes as effective as they were on silver, which is a far smaller, less liquid market.

It was a light day for economic data in North America. The US import price index climbed 2.2% in April compared to the 1.8% expected and +2.6% prior. Food and energy price hikes drove the increases. The report helped to stoke inflationary fears, boosting gold and silver prices.

On to China's CPI

Chinas April data deluge is on tap at 0200 GMT. CPI is expected to fall to 5.2% y/y from a 32-month high of 5.4% y/y. Retail sales are expected to rise to 18.0% from 17.4%; industrial production to 14.7% vs. 14.8% prior. The key report is CPI and talk centers on a drop in food prices as a reason for a slowdown. Even a fall to 5.1% would promote risk appetite because it would diminish the risk of Chinese tightening.

Yesterdays Chinese trade balance data was cited as a reason for todays broad market optimism but we dont see it. The large surplus was due to an unexpected slowdown in imports while exports were virtually in-line with estimates. Holidays and seasonal adjustments may have had a factor, but on the face of it the report points to a softening of economic activity in 3-6 months, if not sooner. It also points to the risk of an unexpectedly large U.S. trade deficit in Wednesdays report.

By AB - Staff


Latest IMTs