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Risk sentiments were improved tentatively, and the risk-on mode seemed to be tentative and speculative rather than based on fundamental assessment. If you look at the Chinese markets, the Shanghai Composite Index (SHCOMP) was trading sideways for most of the day, before suspected state buying popped into the last hour of the session. This took the SHCOMP up over 5% before closing at +4.9%.
The ‘National Team’ has switched to an arbitrary mode of intervening in the Chinese markets to provide support. This was due to two main reasons. The first was because the cost of intervening is increasingly becoming more painful. Second, earlier state support, which has been regular, had bred a moral hazard problem where market participants took the opportunity to get out of their Chinese share holdings by selling them to the state buyer.
Of course, those holding smaller cap stocks have a considerable tougher time doing so. The China Securities Finance Corp (CSFC), which is the state-designated agency to lead the support efforts, was reportedly buying blue chips.
The Nikkei 225 and the ASX ended +0.8% and +1.6%, reflecting the positive lead from the US. In Singapore, the Straits Times Index (STI) benefited from the tentative risk-on sentiment with prices climbing over 1%, and regaining the 2850 level. However, the 2900 handle should remain out of reach today. The rally in the STI was across the board.
The FX markets were also fairly muted today. The USD was flat during the Asian session, which kept most regional currencies steady. GBP jumped above 1.54 on fairly positive jobs data. The average weekly earnings on a three-month basis for July grew more than expected at 2.9% y/y.
USD/SGD continues to be under pressure, although the trend remains on the upside. The safe-haven status of SGD in the region, given Singapore’s AAA credit rating, is helping to press the pair lower. EUR/SGD however has been swinging sideways this month.
Traders will be eyeing the US inflation report tonight. Expectations are for a -0.1% m/m decline in headline CPI, and a mild +0.2% gain on y/y terms. Clearly, a better than expected result would raise hopes of a rate move on Thursday. We could see the VIX index fall further to sub-20 levels, which would sweeten the environment for Fed action.
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