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China data hits industrial metals

The Friday session was filled with data disappointments from Chinese fixed asset investment (FAI) and industrial production (IP) and the US’s retail sales.

China
Source: Bloomberg

While China’s data releases did not have an immediate impact on Asian markets, they were wreaking havoc in Chinese commodity futures with particularly massive drops seen in nickel prices. And it was these developments in Chinese commodities futures that continued to develop throughout the session, which saw the S&P 500 Materials sector lose 1.2% and the Aussie dollar lose 0.6%. China’s retail sales and IP missed estimates, but the worst performance was seen by FAI, which grew at 8.1% year-on-year well below expectations for 8.9%. While flooding in Southern China during the period may have weighed on the data, the concern collapse in private sector FAI continued unabated with year-to-date year-on-year growth falling to 2.1% and in pure year-on-year terms it actually decline 1.2%.

Nickel Prices have now seen their worst two-day drop since May. LME Nickel prices fell 4% on Friday, and investors are likely to see some further falls in major ASX Nickel producers Independence Group (IGO) and Western Areas (WSA) today. But major falls were also seen in other elements of the commodity complex as copper lost 2.4% and platinum lost 2.5%.

AUM-AUD-050816

Even though the Aussie dollar’s initial reaction to the China data release was initially relatively muted, the falls in commodity prices began to weigh on it driving its 0.6% pullback.

US date also managed to disappoint. After Macy’s, Kohl’s and Nordstrom all surged on Thursday after releasing results that saw their revenues decline at slower rates than the Street was expecting, hopes were enlivened for Friday’s US retail sales. These were rapidly crushed as headline retail sales saw a tiny decline in month-on-month terms in July against expectations for a 0.4% gain.

US PPI inflation also disappointed the market as it declined 0.4% month-on-month against expectations for a 0.1% increase.

Oil prices continued to gain in the wake of Saudi Arabia’s oil minister Khalid Al-Falih releasing a statement saying that Saudi Arabia would be prepared to commit some sort of market stabilising mechanisms at the upcoming OPEC meeting. WTI Oil gained another 2.7% to close just below the key US$45 level. Short positions look to be piling out of the market after all hit the key US$40 level and now Saudi Arabia is talking up production freezes again. Although Khalid Al-Falih’s statement occurred after Tuesday, which is when we have Saturday’s CFTC futures data reported from so this hasn’t entirely been reflected in the net positioning yet. The Baker Hughes crude oil drill rig count also gained for its seventh week in a row, but the market focus is primarily on OPEC now.

The ASX is set to open lower with the banks and the materials space both set to drag on the index today. The rest of the Asian markets also look set to open lower as well again today. Energy stocks may be the one bright spot today as WTI oil eyes up breaking through the US$45 level.

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