The GBP/USD continues to surge as market positioning for basically Armageddon in UK economic data continue to be foiled. The pound added another 1% overnight as UK real retail sales beat market estimates expanding 1.5% month-on-month in July. The currency reaction we’ve seen to the UK inflation and retail sales is more a reflection of how short the positioning is. A rise in inflation and a bounce in retail sales in July does not preclude very weak growth in the UK in the second half of the year. The collapse in the pound should push up inflation through the effects of more expensive tradables, and it would make sense for people to purchase as much as they can immediately after Brexit before they lose even more of their purchasing power from currency weakness.
Commodities ex-oil also had a good night with copper rallying 0.7% and platinum rallying 1.8%. There was also good news for metals with the World Bureau of Metal Statistics showing that copper, aluminium, nickel, zinc, lead and tin had all suffered supply deficits in the first half of 2016. Of course, many still have huge global inventories, which tempers some of this positivity.
However, yesterday’s China 70-city property prices showed that demand from China’s property construction industry is not about to drop off a cliff just yet. Price growth continues to ease in the tier 1 cities as the force of new restrictions continue to come to bear, but price growth in tier 2 and tier 3 continues to steadily pick up. This is by-and-large good news for China, easing the extremes in the top-end of the market without damaging the improvement in the weaker parts of the country. All of which is a positive for ongoing commodities demand throughout 2016.
Chinese new property starts have been easing off since their explosion at the start of the year, but they continue to track at some of the highest levels seen since 2011.
The Asian session looks set to follow the gains seen in US markets as the rally in oil prices continue to support equities and risk-on sentiment. BHP’s ADR had a strong performance in the US session and the ASX is set to open higher with solid support coming from the materials and energy sector. Despite the USD/JPY stabilising at a sub-100 level, the Nikkei is also set to open higher today as well, but the yen is likely going to be very sensitive to any statements from Japanese officials that could imply some sort of intervention may be on the way. Chinese markets also look set to continue their solid run as the prospects of new flows from the Shenzhen-Hong Kong stock link buoys markets over there.