Chinese equities rally higher on property market support

Wednesday, October 08, 2014

Chinese stocks rallied higher overnight, in a strong start to their shortened week as trading resumed after the National Day celebrations. In a move that largely bucked the wider sell-off across Asia both the Shanghai Composite and CSI 300 posted firm gains in a delayed reaction to last week’s decision by policymakers to take further steps towards supporting the property market. The PBOC stated last week that it was easing criteria for home buyers, allowing a broader range of buyers access to lower mortgage rates and down payments which supported property developers and industrials higher in mainland China. The rally in China contrasted sharply with the sell-off across a majority of remaining Asian benchmark indices with both the Nikkei and TOPIX in Japan posting losses of 1.19% and 1.24% respectively. Investors in the wider Asian market opted to sell-off risk assets as concerns regarding the weakening global growth outlook pushed up demand for safe havens.

US stocks sold of sharply yesterday as the IMF cut its global growth outlook citing legacies from the financial crisis and geopolitical tensions as key barriers to growth. In its latest World Economic Outlook the IMF forecast global growth to average 3.3% in 2014, 0.1% lower than its July forecast, while growth in 2015 was forecast to rise to 3.8%, a -0.2% revision to prior forecasts. The growth outlooks for advanced economies were expected to diverge as concerns of low inflation and deflation, particularly in the eurozone, were cited as a further obstacle to debt sustainability. The IMF revised the growth outlook for the eurozone lower by -0.3% to 0.8% for 2014 while the outlook for the US was revised up to 2.2% owing to the strong recovery in both the housing and labour markets. The release of the report prompted a broad sell-off in US equities as market participants adopted a risk off attitude ahead of the release of September’s FOMC meeting minutes later today.

Comments from New York Fed President William Dudley made yesterday offered further clarity on the Fed’s timeline for an eventual rate rise. Stating that it was still “premature to begin to raise interest rates” the central banker stated that a stronger dollar coupled with weak foreign demand and increasing domestic energy production were keeping inflation below the Fed’s 2% target and with “significant underutilization of labour market resources” the prospect of a mid-2015 rise in interest rates looked “reasonable”. 

Front month WTI prices extended declines yesterday, erasing all of the previous session’s gains and slipping to a close back below $90/bbl on supply concerns. Yesterday’s release of the API weekly report indicated that stockpiles of crude oil increased by 5.1m barrels w/w last week while gasoline stocks gained 2.5m barrels w/w, prompting a 1.8% sell-off in front month futures. Distillate stocks stood out as registering the only drawdown as stockpiles fell 1.1m barrels last week in anticipation of increased heating demand owing to colder weather conditions. Activity early on this morning has seen the US benchmark reach a fresh 17-month low, trading towards $87.39 at one stage ahead of this week EIA crude inventory data with market participants polled by Bloomberg expecting crude stockpiles to add 2m barrels w/w and refinery utilisation to drop by 0.8% w/w.

Shanghai Composite extends late September rally

SHCOMP Index Shanghai Stock Exc 2014 10 08 07 56 09

Front month WTI prices sell-off ahead of EIA inventory data

CL1 Comdty Generic 1St CL Fut 2014 10 08 07 54 59

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Topics: Crude oil, WTI, PBOC, IMF
More from: Kash Kamal