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Wednesday’s advance estimates of US September retail sales disappointed expectations, coming in at +0.1% m/m while August reading was revised downward to flat (0.0% from +0.2%). The headline print would have been worse, if not for strong auto sales with retail sales (ex autos) contracted -0.3% from the previous month.
The soft numbers dovetailed with the softer jobs reports in August and September, and raised the question whether consumers are able to sustain their expenditure amid domestic economic concerns. Interestingly, the recent patch of weak US data coincided with the global financial market turmoil in August and September.
If you dig below the surface, the data will show that discretionary consumption is still decent, while gasoline sales were dragged by a significant decline in gasoline prices (-10%) in September. This means that while headline retail sales may have showed signs of cooling, it is by no means a blanket indication of weak consumer spending. Nevertheless, it still galvanised the markets. The dollar index fell below 94.0, slipping to as low as 93.81, lowest in seven weeks.
Risk markets across Asia perceived the increased prospects of a rate hike delay as something ‘good’, as the weaker dollar would help boost commodity prices and eased the repayment burden on USD-denominated debt for corporates and sovereigns in the region. Asian equities rose across the board, led by China.
The CSI 300 rallied 2.4%, although it closed below 3500. Chinese markets were also re-energised by speculations that the central government will accelerate reforms of the state-owned enterprises (SOE) after news of a government plan to reorganise the telecom sector. The Hang Seng China Enterprise Index was up 2.1%, which helped the Hang Seng Index add 2%.
Recent spate of weak China data continued to boost expectations that Chinese policymakers will introduce more stimulus to shore up growth. Q3 GDP data is due for release next Monday, 19 October, and the markets expect growth to slow to 6.8% from 7% in the first half.
While signs of further slowdown would dampen market sentiments, the reality is that China remains committed to recalibrating itself to a higher-quality economy, driven by consumption. To be sure, the restructuring efforts will slow down growth momentum in the interim, but will help China build more sustainable growth in the economy.
Moreover, some economists reckon that the current economic indicators are actually under-reporting consumption and the stronger service sector growth, which are going to be the pillars in the revamped Chinese economy.
In the meantime, expectations of more Chinese stimulus are probably helping to bolster risk buying, and added more steam to Chinese markets.
In the late afternoon, the USD recouped some losses, heading back above 94.0, helped by a sell-off in EUR/USD. This was triggered by comments from ECB’s Nowotny who said that euro-area core inflation is clearly below target. He added that additional sets of instruments are needed to boost inflation, including structural measures.
The euro-area CPI unexpectedly turned negative for the first time since ECB started its EUR 1.1 trillion QE programme, in September, coming in at -0.1% y/y. EUR/USD shaved 40 pips off after Nowotny’s remarks.
The STI opened higher this morning, and quickly regained above the 3000 level, in conjunction with regional risk uptake. Prices managed to stay on top of the 3000 mark for most of the session, and keeping in line with a stronger Sing dollar. Financials and consumer staples led the STI rally, as prospects of more stimulus bolstered these sectors.
Meanwhile, the MAS said it will work closely with SGX to strengthen Singapore securities market. The key initiatives are likely to revolve around increasing the range of market products, which are simple and low-cost, to retail investors.
The authorities are also working on making it easier for corporates to offer bond products to retail investors by the end of this year. The monetary authorities stressed that the minimum trading price requirement is important to improve the quality of listings on the Singapore exchange, as well as a reminder to public companies to focus on improving fundamentals.
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