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Swedish Economic Data Purports Healthy Picture And Continued Momentum

Thursday, 28 December 2006 19:54:57 GMT  |  Richard Lee, Strategist

·          South African Rand Gains On Narrowed Trade Deficit

·          Swedish Economic Data Purports Healthy Picture And Continued Momentum

·          Hong Kong Trade Deficit Widens Despite A Doubling Of Exports

 

South African Rand

 

The volume of imports lessened for the month, narrowing the overall trade deficit in the South African economy.  Falling from a record 12.9 billion rand, the November deficit stood at 10.5 billion rand as imports of crude oil declined boosting further gains in the export market.  For the month, exports rose by 4 percent to 41.4 billion rand as demand for precious metals and vehicles contributed heavily to the increase.  However, what remains disconcerting is the impact the trade deficit still has on the overall current account balance.  For the first 11 months of the year, the trade gap has widened to almost 3 times the size seen in 2005.  As a result, market participants are looking for the potential that the fourth quarter’s deficit will be much wider than the third quarter, lending to overall rand weakness.  Nonetheless, the report according to the South African Revenue Service, was the main focus of the day as the narrower monthly figure contributed to intraday rand strength, taking the underlying currency pair lower from the 7.1000 technical resistance that was met in the overnight session.  Now trading at 6.9725, speculation is mounting on the likelihood that Governor Tito Mboweni will be forced to raise rates once again in order to contain rampant consumer spending currently undergoing in the economy.  Since mid year the South African Reserve Bank has resorted to increasing interest rates to a high 9 percent for 2006 in attempts to curb domestic consumption.

 

Mexican Peso

 

Strengthening in the New York session, the Mexican Peso made gains against the US dollar as economic fundamentals in the US boosted the likelihood of continued export strength for Latin America’s second largest economy.  With consumer confidence and manufacturing visibly higher in the world’s largest economy, consumers may be more willing to spend and support the export sector of its trade partner Mexico.  The optimism was boosted by rises in the crude oil commodity on the New York Mercantile Exchange.  The contract was taken higher on bids throughout the morning as the Department of Energy noted considerable declines in the weekly inventory report.  Dropping by 8.1 million barrels, the weekly figure was far more than expected by the consensus, leaving some concerned that a sudden disruption may leave the market down a dreary path.  The notion supported higher contract prices, leaving the front month contract higher for the day, advancing to a settlement above the $60.50 figure.  Dependant on exports of crude oil, the Mexican economy additionally benefits from increases in prices of crude as it transforms into petrodollars for the country.  Subsequently, the day’s events have left the emerging currency pair lower from the 10.8922 close yesterday, now currently trading at 10.8500.

 

Nordics – Sweden, Norway, Denmark

 

Aside from higher crude contracts contributing to Scandinavian bullishness in the Norwegian and Danish economies, economic fundamentals added to strength for the Swedish Krona.  Privy to a full list of scheduled data for the Swedish economy, traders took note that overall optimism was the theme of the day with three key reports reporting positive figures.  First, retail sales figures added to the sentiment as the report rose for a fifteenth straight month in November, gaining by 0.2 percent.  Decreases in unemployment and rising incomes have seemingly spurred on the domestic consumers, helping to boost consumption at all levels.  The notion says a lot as domestic consumption constitutes approximately half of the $360 billion economy.  The resultant figure was reflected in the consumer confidence report, released in the same time frame.  In the month of December, consumer confidence rose from an 11-month low as consumers grew increasingly confident on tighter labor markets and wage growth.  As a result, Riksbank members are likely to continue the current tightening cycle in the economy as it grows increasingly clear that consumption still has ways to go higher.  Separately, the nation’s trade surplus additionally widened as exports to global trade partners rose.  For the month, the surplus unexpectedly widened to 12.3 billion kronor, overshadowing expectations of a 10.4 billion kronor surplus by the consensus.  Ultimately, all three reports helped the Swedish Kroner to advance against the US dollar, finding support at the 6.9000 figure and currently trading at 6.8829.

 

Asian Bloc – Singapore and Hong Kong

 

Economic data in the Asian bloc was somewhat scarce with only the trade balance in Hong Kong taking center stage.  However, the dearth of data didn’t stop Singapore dollar bulls from taking the currency higher in the New York session.  Breaking through further technical support, the USDSGD currency pair continued to decline through 1.5400, a nine year support figure, as the Straits Times benchmark stock index reached another record high.  Boosted by proxy interest in China and Japan based assets, the benchmark index now remains higher by 26 percent on the year, far ahead of US and European markets.  Subsequently, the momentum is likely to stick around in the absence of any intervention by the Monetary Authority of Singapore as economic fundamentals continue to favor further expansion in the Asian city-state economy.  Separately, in Hong Kong, the trade deficit widened for the month of November to $8.9 billion from the October deficit at $3.1 billion.  The widened gap was attributed to a sharp increase in imports even as export doubled in the month.  Exports rose by 14.2 percent from the previous 7.9 percent as demand was well supported in the US, Europe and China.  However, with economic expansion in the air, domestic Hong Kong consumers have increased their consumption offsetting the increase in outbound goods.  The notion was visible as imports kept pace, rising by 16.3 percent in the month, slightly above the 11.2 percent seen in October.  Ultimately, the report is expected to keep Hong Kong officials looking for restrictive measures in the near term as consumption is looking to continue its upward path in coming quarters.

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