Chinese industrial profits slip for a second month

Tuesday, January 27, 2015

Futures prices across the base metals complex were trading lower early on this morning after National Bureau of Statistics data released overnight showed industrial profits grew at their slowest pace on record in December, extending the previous month’s declines. Industrial profits were down 8% y/y in December, deteriorating from the -4.2% y/y contraction seen the previous month, increasing speculation among investors that demand was struggling to stabilise from the world’s largest consumer of industrial commodities. Three month LME nickel prices were down almost 1.4% from yesterday’s close while three month copper prices traded back towards $5,550/tonne after spiking on the downside below $5,340/tonne. The weaker industrial profits data dragged benchmark equity indices lower with the CSI 300 and Shanghai Composite both losing 0.9% at the close.

In an effort to combat the sluggish outlook the PBOC took steps to inject funds into the market by instigating 60bn yuan of reverse repos for seven day and 28 day contracts. The central bank decided to take action ahead of the Lunar New Year celebrations, ensuring plentiful supply for the anticipated demand spike. Rates on the reverse repos were cut with the seven day reverse repo offered at 2.85% and the 28 day contract offered at 4.8% with the 60bn yuan split evenly among the two. This isn’t the first time that the PBOC have taken steps to ensure the market has enough liquidity as it offered 50bn yuan of seven day reverse repos yielding 3.85% on the 22nd of January. The significant uptake in shorter term tools to manage the capital markets offers an insight into Beijing’s plans to stimulate growth with the focus on liquidity and shoring up markets against significant capital outflows.

The yen gained ground against the dollar during overnight trading, strengthening towards 118.00 as the currency recovered the majority of yesterday’s losses. The move came after comments from a government official stated that neither the Bank of Japan nor the government were committed to a strict time horizon for achieving the 2% inflation target. The yen has experienced substantial swings in recent sessions, albeit within the previous week’s range as it continues to consolidate sideways. However, speculation among investors that the BoJ will ease up on its rigid approach towards meeting the inflation target could prompt further yen strength in the near term.

Chinese industrial profits slip further in December

CNPRETLY Index China Industrial 2015 01 27 07 15 30

JPY gains toward 118.00 against the dollar

JPY Curncy Japanese Yen Spot 2015 01 27 07 48 10

Events for today

0930

UK

Q4

GDP

1330

US

Dec

Durable Gds & New Orders

1500

US

Dec

New Homes Sales

LT:

Jan Copper, Gold, Silver (COMEX) 

Feb Natural Gas (NYMEX)

 

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