The air of cautiousness in the market is understandable given the spate of weak macro data seen recently. The employment cost index came in sluggishly, which raised doubts the Federal Reserve would hike rates in September. That said, I feel the data print is hardly going to derail the ‘some improvement’ the US central bank is aiming for before tweaking policy. Not forgetting that this week’s job data will garner greater importance, and September bulls should only react accordingly if ADP, initial claims and non-farm payrolls all significantly underperform. By all accounts, it seems the market is confident the improving outlook in US labour markets remains on track. The consensus is still anticipating an above 200k reading for July payrolls as well as a modest 0.2% month-on-month growth in the average hourly earnings.
In China, the flash Caixin PMI surprised on the downside, where it was revised down to 47.8, the lowest in two years since July 2013. The market was looking for a slight upward adjustment to 48.3. The official PMI released over the weekend, eased from June’s 50.2 to 50.0 in July. While all this clearly signals the possibility of further weakness in the Chinese economy, market reaction to the data was fairly muted. Perhaps the government’s pledge last week to make policy adjustment in the second half of 2015 gave the impression that fresh fiscal measures to stimulate growth may be in the pipeline. Furthermore, the authorities have recently expanded the local government debt swap programme by another CNY 1 trillion, and stepping up lending capacity at policy banks. This suggests China is preparing the ground for fiscal stimulus. Surely, new state spending would allay concerns over China’s economic activity.
Sustained deleveraging, amid signs of deteriorating economic momentum, drove further decline in the Chinese stock market. Outstanding margin debt dropped to CNY 1.34 trillion as of 31 July, erasing CNY 900 billion from the 18 June peak, and now stands at the same levels from more than four months ago. The Shanghai and Shenzhen Composite fell 1.1% and 2.7% respectively. There were tell-tale signs that the state-linked funds were back to propping the markets today, with the China A50 advancing 1.1% to close at 11027. Additionally, smaller cap became selling targets again, as the ChiNext tumbled over 5%. 18% of the A-shares remained suspended, according to Bloomberg data.
Singapore shares down
Singapore shares came under pressure from the get-go. The Straits Times Index quickly slipped below the key 3200 support, and remained capped below said level for the entire session. However, buying in around one-third of the STI constituents kept bears from pushing lower. Noble was the best performer in the index, climbing nearly 9% at one point towards SGD0.50. This came on the back of their decision to push forward the release of its Q2 earnings results, accompanied by more details on the valuation of its minority investment in Yancoal. Moreover, PwC will publish the review on Noble’s accounting practices. However, Noble has lost over 60% of its value since the start of the year, which placed the firm near the bottom of the STI in terms of market capitalisation, accounting for just 0.80% of the index. A year ago, the commodity trader has double the value at 1.9%.
Financials remained under pressure, with UOB dropping over 1% after Credit Suisse downgraded its recommendation to ‘neutral’ following the bank’s underperformance in the Q2 earnings. DBS swung between gains and losses. Meanwhile, the next technical level to watch in STI will be 3150, which is the October lows.