Chinese deflation fears hurt market sentiment ahead of BoE decision

Thursday, September 10, 2015

The Bank of England announces its latest decision on interest rates later today, which have remained unchanged at 0.5% since March 2009. The BoE will also publish the minutes of its latest Monetary Policy Committee’s meeting at 12 o’clock BST. Unchanged policy and QE are widely expected. According to the latest Halifax survey, house prices increased by 2.7% m/m in August, beating expectations of a more modest increase of 0.5% and showing the biggest monthly increase since May 2014. In year-on-year terms, house prices jumped by 9.0% in the three months to August. Sterling slid lower towards 1.5350 against the USD, while the London equity benchmark index retreated nearly 1.0% in early trade this morning, towards 6,170.

GBPUSD hovers around 1.5350 ahead of BoE decision

GBPUSD Curncy (GBP-USD X-RATE)   2015-09-10 09-11-25

Asian equity markets gave back recent gains and reversed to post heavy losses overnight as the recent upside rally paused. The Hang Seng index plunged by over 600 points (-2.75%) towards 21,500, while the Shanghai composite index retreated by 1.4% below 3,200. China’s consumer price index (CPI) unexpectedly increased to 2% y/y in August from 1.6% in July, mainly due to higher food prices. China’s PPI dropped 5.9% y/y in August, showing its 42nd consecutive month of declines.

Hang Seng index remains under pressure

HSI Index (Hong Kong Hang Seng I 2015-09-10 09-12-51

In Japan, the Nikkei index declined sharply over 450 points (-2.50%) following disappointing economic data, giving back part of the gains made earlier this week. Japan’s core machinery orders dropped by 3.6% y/y in July, missing estimates of a 3.0% rise. Investors remain highly cautious over the Chinese slowdown, while increasing concerns surrounding the impact of a US interest rate hike weigh on market sentiment.

Brazil’s sovereign rating was cut to “junk” by Standard and Poor’s. The country’s rating was reduced one step from BBB- to BB+, with a negative outlook. Brazil’s President Dilma Rousseff has been struggling to support fiscal accounts due to a faltering economy.

European equity markets reversed and slid lower in early trade this morning, following heavy losses across the US and Asian equity markets. The DAX, CAC and IBEX declined between 0.50% and 0.95% in early trade, while the euro remained under pressure after hovering around 1.1180 against the USD. Investors will be keeping an eye on the release of the weekly US jobless claims data for direction.

 

Events for today:

0001

UK

Aug

RICS House Prices

0050

JP

Aug

PPI

0230

CN

Aug

CPI & PPI

1200

UK

Sep

BoE Rate

1330

US

w/e

Jobless Claims

1530

US

w/e

EIA Nat Gas

 

All times UK Local Time

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