After digesting the raft of releases from yesterday’s trade it seems investors are content with the idea that key central banks will be in no rush to tighten. Data from China, Japan, the UK and the US all fell short of estimates yesterday and this prompted investors to feel key central banks will not be in any hurry to tighten.
On the China front there are also growing calls for another RRR cut or some sort of measures in the near term. However, given the last RRR cut was only in June and very targeted, I don’t think China will be in any hurry to cut again in the near term. The PBoC actually said that its policy views are unchanged and it will remain prudent. Domestic activity has remained robust with a sharp pick up in exports boosting recent trade balance figures to a record. The real concern will be around property prices and the impact this has on the non-manufacturing sectors. I suspect if any fresh measures are to be introduced, they’ll most likely be targeted towards the property sector. July property prices are due out on Monday 18 August and these will deserve some attention.
The Shanghai Composite and the Hang Sang have both been relatively flat and underperforming the region today. The Hang Seng is stuttering as it approaches the 25,000 level, the last time the index traded there was back in May 2008. Investors are likely to be exercising some caution and waiting for the next catalyst of which I suspect property prices on Monday will carry significant weight.
ASX 200 rallies on earnings
While China is relatively flat, Japan and Australia are flying with gains of around 0.7%. The ASX 200 is being underpinned by earnings, with most of the reporting companies today impressing. Telstra has been the headline act today as the stock traded at fresh cycle highs above $5.50, the highest since 2002. The stock had been threatening to break higher for a while and today’s results really confirmed that the company is in a good position.
While most metrics were a touch ahead of estimates including net income, revenue and underlying earnings, investors were particularly impressed by the company’s ability to return capital. The final dividend was a smidge ahead of estimates at 15 cents, but with plenty of free cash flow, investors will be optimistic that more capital will be returned to shareholders in coming years. In terms of guidance, TLS was quite conservative and forecast broadly flat FY15 earnings.
Fairfax has been one of the best performers today as investors feel there is a bit of a turnaround taking place. Earnings and dividend beat estimates and the company is expecting significant savings in coming years. Tomorrow we have a quarterly trading update from ANZ and that is likely to set the tone for the banks and most of the market.
Europe focusing on GDP
Looking ahead to European trade, we are calling the major bourses mildly firmer. Q2 GDP figures are due out later today for Germany, France and the region, there will be some cautious trading in the single currency. While the market is pricing in growth, there is a risk we’ll see a disappointment in these figures with analysts tipping a relatively flat performance for the quarter. The region’s final July CPI reading will also be released but not much change is expected on that front. A round of disappointing numbers could present an opportunity to sell the pair on momentum with key lows to look out for in the 1.3330 region. Once this is broken then the pair could be facing another leg lower.
Alternatively, if we see a surprise to the upside, then selling rallies will still be on the cards. In the US, unemployment claims will be the key focus as the Fed continues to watch for ‘slack’ in the labour market.