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It was another rocky day for markets on Friday. In Asia, China’s CSI300 index plunged by 3.2%, to take it down more than 16% for the year. Chinese loan data came in weaker than expected, suggesting banks were tightening up on credit, but a wider measure of aggregate financing was stronger, as corporate bond sales rose and companies sought off-balance sheet (“shadow”) means of financing. This didn’t help allay credit concerns in China.
Meanwhile speculators tested the resilience of Hong Kong’s currency peg, with the HKD showing its biggest 2-day loss since 1992.
That set the scene for rocky sessions in European and US markets. A series of weak US data releases provided some ammunition for the pessimists, and it was all downhill from there. US core retail sales for December undershot expectations, setting off a wave of downgrades for Q4 GDP estimates, which now look centred on something like an annual rate of just 0.5%. The Empire manufacturing survey indicator fell to its lowest level since the GFC, while US industrial production was also soft. An okay reading for consumer sentiment and some good earnings reports were not enough to prevent a wave of selling of equities. A further sharp decline in oil and other commodity prices added to the gloom. Iran is set to boost oil exports as economic sanctions are lifted. Brent crude fell by 6.3% to below the $29 per barrel mark to a fresh 12-year low.
The S&P500 fell by 2.2%, taking the year-to-date fall to 8%, while European equities were down in the order of 2-3%. Contributing to the weakness was the long weekend ahead in the US, with investors more inclined to sell ahead of the holiday to give them peace of mind on the ski slopes.
The risk-off mood help drive the Yen to fresh highs. USD/JPY reached as low as 116.51 before ending the NY session at almost bang on 117. The euro and swiss franc were also well bid. EUR/USD came close to testing the 1.10 handle, but just failed to reach that level, before receding to 1.0916. GBP remained out of favour, falling 1.1% to 1.4258.
Amidst the gloom, the NZD held up pretty well. NZD/USD reached a low of 0.6382 in the early hours of Saturday morning but recovered to end the NY session at 0.6461. The November support level of 0.6430 has been tested a couple of times now and remains a key technical level. We think that it is only a matter of time before a more sustainable break of that support occurs, which will see the NZD fall a lot further this year.
One of the weakness currencies was the Australian dollar, no doubt given its strong links with China and falling oil and base metal prices. AUD/USD traded down to 0.6827, before recovering slightly. With the NZD holding up and the AUD under attack, NZD/AUD traded a wide range. During the local Friday afternoon session, NZD/AUD fell to a low of 0.9250 but closed the NY session much higher at 0.9422.
The Canadian dollar remains well out of favour and has fallen every day this year. USDCAD closed at a 13-year high of 1.4541.
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Kymberly Martin is on the BNZ Research team. All its research is available here.
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