China lags Asia after a sharp drop in financing

Equities in Asia have not quite mirrored the solid recovery in US trade with China lagging the region.

Investors are digesting a raft of releases out of China including new loans, money supply, foreign reserves and aggregate financing data. There was a sharp drop in money supply through March while new yuan loans actually bounced back strongly. However, what caught analysts attention was a 19% drop in aggregate financing data on year.

While this figure is alarming, it is important to also note that it was coming from the second highest level ever. Meanwhile the rise in foreign exchange reserves shows the level of intervention China is involved in. The key going forward is how this impacts growth and growth expectations. Questions remain around China’s growth going forward and tomorrow’s GDP print will offer more insight into how China is tracking.

There have been plenty of reports highlighting the risk of China growth falling short.  Tomorrow’s GDP reading is expected to show 7.3% growth while industrial production is expected up 9% on year. Should this data miss expectations tomorrow, this could well be the trigger for some stimulus. As a result, interpretation of the data will be key for tomorrow’s trade.

Elsewhere in the region, Japan is leading the way after the USD/JPY recovery helped Japanese equities recover.

Europe in for a flat start

Looking ahead to European trade, we are calling the major bourses relatively flat with focus likely to remain on Ukraine and Russia tension. With the US ready to impose additional sanctions and the EU freezing assets for a growing number of Russians, it certainly seems like the situation is escalating. On the economic front we have the ZEW economic sentiment reading for Germany and the region, along with trade balance numbers. However, even if the data is strong, it is hard to see any real upside in the single currency given officials continue to talk it down and of course the risk from the Ukraine/Russia tension.

EUR/USD gapped lower at the start of trade yesterday and remains subdued with traders reluctant to take advantage of the dips. Looking at the balance of factors, it seems we are more likely to see the pair face downward pressure in the near term. In the UK we have CPI data due out. On the USD side of the equation we have a raft of releases later today including CPI, Empire State manufacturing index and a speech by Fed chair Janet Yellen. Fed members Plosser and Kocherlakota will be also on the wires.     

Mining names release numbers

The local market has been quite resilient today, with losses in China not deterring investors from local equities. Resource sector reports have been the highlight of today’s trade, with Rio Tinto and OZ Minerals being the standouts. RIO’s iron ore production is on track for 295Mt and shipping for 290Mt which was more than enough to appease investors. Copper was also better than what analysts were expecting.

Meanwhile OZL saw cash costs drop to US$1.22/lb and this was enough to see its shares bid higher today. Apart from resource names the banks have been resilient today with the majors putting on at least half a percent. This has helped the market maintain steady gains through the day.

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