China, Japan PMIs in focus

The markets will be hoping for some good news around manufacturing sentiment from China and Japan PMIs, following some disappointing trade balance numbers from Japan.

Japanese flag
Source: Bloomberg

Data released this morning showed Japanese exports for June dropped 2% year-on-year, instead of growing 1% as expected by consensus forecasts.

Exports have now dropped for the second month in a row, which could raise some concerns over growth for the full year. This was likely due to a drop in European demand.

Strong domestic demand helped pushed up imports, which came in stronger than expected. Imports rose 8.4%, above the consensus forecast of 8.3%.

Overall, this left the trade deficit wider than expected at 822.2 billion yen, instead of the expected 642.9 billion yen. There was no immediate reaction from USD/JPY, holding steady at the 101.53 handle.

Next Investors will be looking out for leads from flash PMI for manufacturing in July for both Japan and China, which is due later this morning.

It will be interesting to see how the Australian dollar reacts to the Chinese data. If it is stronger than expected, we could see the currency move higher along with sentiment for Australian mining stocks.

A strong AUD/USD could leave the RBA in a policy bind, after it posted some stronger-than-expected inflation numbers yesterday. The central bank has been showing some concern of an overvalued currency hurting growth amid weaker commodity prices.

This is the same tone that the RBNZ Governor Graeme Wheeler took earlier this morning. He said the level of the Kiwi dollar was “unjustified and unsustainable” given falling commodity prices. His comments sent the Kiwi dollar down 1% against the greenback.

Ahead of the Singapore Open

Wall Street has a positive session with S&P 500 climbing to a new high. Sentiment was lifted by strong Q2 earnings from Facebook, driven by robust mobile ad sales.

There are reports of Chinese cities seeing growth picking up, based on local government data and media surveys. This could be a boost for investor sentiment in the local market.

We are calling for the Hang Seng China Enterprise Index to open higher 0.47% at 10852.7 points.

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