Chinese market volatility persists despite Beijing intervention

Tuesday, July 28, 2015

Asian equities traded mixed overnight with Chinese mainland stock indices struggling to stem the recent outflows as both the Shanghai Composite and CSI 300 shed 5% early on before recovering the majority of these losses towards the end of the session. Policymakers in Beijing have struggled to put a lid on the significant market volatility that has dominated trading activity over the past two months and despite officials pledging further assistance in an effort to shore up support it seems confidence among retail investors has taken a significant blow. Many investors who were caught out in the large double digit percentage swings throughout June and July may opt to remain on the side-lines until a semblance of calm returns.

The rouble posted losses against the dollar for the sixth straight session yesterday and was on track to post further declines against the greenback today. The onslaught against emerging market currencies has intensified in recent weeks as the outlook for the US economy improves and expectations of an incoming rates rise see investor flows into the dollar rise substantially. The rouble has been hit doubly hard as the Russian economy struggles with low crude oil prices, a slowdown in Chinese demand and the expectations of Iranian crude output returning to market at a much faster pace than previously expected. Having lost almost 6% against the USD since last Monday the RUB has revisited a four month low and with the US Fed expected to tighten monetary policy in the coming months and the oil rout showing no signs of ending any time soon we could see the rouble trade weaken further, trading back towards January levels where it traded at 70.00 against the dollar.

Investor attention today will remain focused on UK Q2 GDP data which will give market participants further insight into the state of the UK economy. With Bank of England Governor Mark Carney dropping stronger hints of a sooner than expected rate hike the advanced second quarter GDP data will either strengthen the case for a rates rise in the coming months or shake confidence in the UK economy. Analysts polled by Bloomberg anticipate GDP growth at 0.7% q/q in the second quarter, accelerating from the 0.4% q/q increase seen during the first quarter. Over in the US, with only the Markit composite PMI, Richmond Fed manufacturing index and consumer confidence data for July out we anticipate relatively mute trading activity ahead of tomorrow’s FOMC rates decision and accompanying statement which investors hope will provide further insight into the time frame of a US rates rise.

Shanghai Composite attempts to recover recent losses

SHCOMP Index Shanghai Stock Exc 2015 07 28 08 14 55

RUB losses against USD mount

RUB Curncy Russian Ruble SPOT 2015 07 28 08 14 43

Events for today

0930

UK

Q2

GDP

1445

US

Jul

Markit Composite PMI

1500

US

Jul

Richmond Fed

1500

US

Jul

Consumer Confidence

Topics: GDP, USD, China, RUB
More from: Kash Kamal