Asian bourses started the day on a weak note, but frowns turned upside down as trade war fears eased (at least on China’s side).
Forex markets, however, saw different catalysts with Kiwi taking the most hits while the yen climbed on top of the pip hill.
- U.K. RICS house price balance up to 4% as expected vs. 3% previous
- Japan’s core machinery orders drop by 8.8% vs. 1.2% decline expected, 3.7% decrease in May
- China’s CPI (y/y) up from 1.9% to 2.1% vs. 2.0% expected
- China’s PPI (y/y) increases by 4.6% vs. 4.4% expected, 4.7% previous
China’s CPI and PPI reports
China’s consumer prices rose by 0.3% in July, faster than the expected 0.2% uptick and better than the 0.1% drop we saw in June. It’s also the first monthly increase in FIVE months, yo!
A closer look tells us that food inflation hit its fastest growth in three months while non-food costs also accelerated for the month.
On an annualized basis, prices had risen to a four-month high of 2.1% against estimates of a 2.0% gain and June’s 1.9% increase. China had matched last year’s 3.0% inflation rate in its 2018 estimates.
Remember that today’s release is the first official reading since China retaliated against the U.S.’ 25% tariff on $34 billion worth of goods.
Meanwhile, a separate release showed China’s producer price index (PPI) — a gauge of factory gate inflation — rising by another 0.1% in July after seeing 0.3% growth in June.
Its annualized reading reflected a 4.6% increase, which is slower than the 4.7% growth that we saw in June but is faster than the 4.4% growth that many had expected.
A cooler PPI caused traders some bad moments, but the upside surprise in the annualized CPI reading hinted that the U.S.-China trade war will have a limited impact on consumer prices.
Japan’s machinery orders miss
Data from the world’s third largest economy showed core machinery orders dropping at its fastest pace in six months in June.
The volatile report reflected an 8.8% decline for the month, which is WAY more than the 1.3% slip that many had expected.
The decline was partly influenced by a 6.1 magnitude earthquake in Osaka in July, but it mostly spooked investors into thinking that capital expenditure may have peaked for the year. Not a good prospect especially if Japan becomes tangled in its own trade war against the U.S.!
Intraday reversal in the markets
The Asian bourses started the day on a weak note as traders continued to price in the escalating trade war between the U.S. and China.
However, traders soon took to heart a comment from state media CCTV’s morning talk show saying that “China has confidence in protecting its own interests” and that it “has many means” to do so.
The idea of the government stepping in to safeguard its domestic economy took hold and boosted the Chinese (and a lot of Asian) markets.
It also didn’t hurt that today’s CPI report hinted of the trade war’s (so far) limited impact on consumer prices.
Nikkei missed the bus, though, thanks to a weaker-than-expected core machineries report and uncertainty ahead of the U.S.-Japan bilateral trade talks this week.
- Nikkei is down by 0.08% to 22,625.4
- A SX 200 is up by 0.76% to 6,304.5
- Shanghai index is up by 1.78% to 2,793.038
- Hang Seng is up by 0.90% to 28,614.5
Commodities were all too happy to soak up the risk-friendly vibe with gold taking advantage of a bit of dollar weakness while oil prices cheered the potential stimulus from China’s government.
- Gold is up by 0.10% to $1,215.00
- Brent crude oil is up by 0.48% to $72.55
- U.S. WTI is up by 0.51% to $67.03
Major Market Mover(s):
The Kiwi continued to take hits across the board after the RBNZ printed a “dovish hold” and emphasized downside growth risks in its latest statement.
NZD/USD is down by 65 pips (-0.97%) to .6682; NZD/JPY is down by 80 pips (-1.07%) to 74.04; GBP/NZD is up by 185 pips (+0.97%) to 1.9273; NZD/CHF is down by 67 pips (-1.01%) to .6633, and AUD/NZD is up by 127 pips (+1.16%) to 1.1139.
The low-yielding yen was king of pips during the Asian session thanks to overall risk aversion and more traders pricing in a low-key surrender from the BOJ regarding its easy monetary policy biases.
USD/JPY is down by 15 pips (-0.13%) to 110.81; GBP/JPY is down by 16 pips (-0.11%) to 142.72; EUR/JPY is down by 13 pips (-0.10%) to 128.70, and down by 8 pips (-0.07%) to 111.62.
Thanks to strong Chinese data, a steadier yuan, and AUD/NZD shooting higher, the Aussie received some support from the bulls today.
AUD/USD is up by 15 pips (+0.20%) to .744; AUD/CHF is up by 9 pips (+0.12%) to .7389; EUR/AUD is down by 18 pips (-0.11%) to 1.5604, and GBP/AUD is down by 27 pips (-0.16%) to 1.7303.
Watch Out For:
- 5:45 am GMT: Switzerland’s unemployment rate (2.6% expected and previous)
- 6:00 am GMT: Japan’s preliminary machine tool orders (y/y)
- 8:00 am GMT: ECB’s economic bulletin