China data disappoints but markets rally on hopes for further support

Monday, August 10, 2015

Asian equity markets started the week on a strong footing despite data released over the weekend continuing to pile on the pressure, presenting policymakers with significant headwinds. The increased likelihood of additional support in China saw Asian equity markets rally firmly overnight, with the Shanghai Composite and CSI 300 adding roughly 5% apiece as investors piled into equities on the hopes of further stimulus. Trade data released over the weekend painted a bleak picture, with exports down -8.3% y/y in July against expectations of a modest -1.5% y/y drop while imports came in broadly in line with expectations, slipping -8.1% y/y. The trade surplus for July fell to $43.03bn from $46.54bn the previous month, significantly lower than consensus estimates of $54.7bn. Inflation data added to the bearish outlook with factory gate prices falling -5.4% y/y in July, accelerating last month’s -4.8% decline. Policymakers are struggling to maintain growth in the world’s second largest economy as Beijing remains committed to its 7% growth target, however, a weak demand outlook has dragged financials and commodities prices steadily lower and this target is increasingly looking optimistic.

Athens is nearing the conclusion to its €86bn third bailout package with creditors, with the hopes of a deal being reached this week ahead of an August 20th deadline when Greece must make a $3.2bn loan repayment to the ECB. The key terms in the deal which propose spending cuts, reforms and privatisations have been hard fought between both sides as some of the more hawkish creditors remain unwilling to compromise with officials in Brussels commenting that an early deal would be “ambitious but feasible”. The euro strengthened towards 1.1000 against the dollar toward the end of last week as investors remained hopeful, however, dollar strength owing to the expectations of an incoming rates rise has capped any material gain in the single currency and we expect it to spend today’s session well within the previous week’s trade range. Currently the euro is trading around 1.0970 against the dollar early on this morning, opening around Friday’s close and trading tentatively around those levels.

Spot gold prices have started this week on a firm footing as weaker than expected Chinese inflation and trade data prompted some haven demand. Despite gaining ground towards $1,095/oz towards the end of last week and trading towards $1,099/oz early on this morning the yellow metal has struggled to breakout of the recent pattern of consolidation which has dominated trading activity since mid-July. Recent attempts to breach $1,100/oz have so far proven unsuccessful and  with a strong US dollar pinning down the short term price outlook we could see gold prices continue to trade sideways this coming week.   

Chinese trade surplus slips for second month

CNFRBAL Index China Imports 2015 08 10 08 28 49

Eur under pressure as strong dollar reigns

EUR Curncy Euro Spot Daily 10 2015 08 10 08 15 59

Events for today

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CN

Jul

Trade Balance (08/08/15)

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CN

Jul

CPI & PPI (09/08/15)

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CN

Jul

Money Supply

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JP

Jul

Trade Balance

0930

EZ

Aug

Sentiment Index

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