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Starting with Asia, the middle of the month is usually chockfull with China economic data, and this week is more jammed than usual because Q2 GDP reading is due later today at 0200GMT.
Considering the softening in higher frequency data for most of Q2, the consensus stands at 6.8%. It would be a big surprise if the actual reading comes in at 7% or higher.
Any pass-through effect from the huge correction in Chinese equities to the real economy is not expected to materialise in the GDP print, but should show up in Q3 numbers.
However, as I had mentioned earlier, the economic impact is likely to be insubstantial as stocks account for less than 20% of the household financial assets. This suggests any dampening effect on domestic consumption should be minimal.
With the recent interest in the Chinese stock market moves, it is worthwhile reminding that the Chinese authorities have in the past emphasised on the desirability of a strong stock market as it potentially brings about several benefits. This includes positive wealth effects, a shift towards more equity funding and less reliance on debt financing, and a supportive environment to enact SOE reforms.
More importantly, it complements the broader efforts to rebalance the credit conditions. Beijing is concerned about risks arising from shadow banking activities and has been implementing measures aimed at limiting these risks, including curbing these activities.
The upshot is that China is going to continue supporting the equity markets, however, stability will be the key word. The authorities will continue to calibrate the equity markets as best as it can in the near to medium term to derive the benefits.
It means that traders should not get complacent about the Chinese markets. For the time being, domestic equities are looking to enter a period of consolidation, as market participants adjust to the series of measures, as well as the gradual withdrawal of these measures.
I expect volatility to pipe down further, as retail margin traders stay cautious (or away), particularly those who rode the down-wave in the middle of June.
Moving to Europe, there is still quite a distance to cover in the Greek bailout deal. PM Tsipras is playing the victim card, saying that he agreed to the deal with ‘a knife at his neck’. On national TV, he portrayed the latest package with harsher austerity measures as unavoidable because the alternative is even worse.
Meanwhile, the IMF said Greece needs more debt relief than what the European leaders have been willing to consider. In short, the Greece situation will continue to unfold the involved parties limped towards a sustainable (or perhaps not) package for the embattled country.
I feel that investors will increasingly pay attention to the US as Greece and China take a backseat. Not only will central bank divergence take centre-stage, with Fed chair Janet Yellen giving her testimony to the Congress tonight, followed by a similar address to the Senate tomorrow, the US Q2 earnings season has kicked off.
We would see some volatility and perhaps some positive surprises. There will be six earnings releases today, with Bank of America and Intel Corp leading the pack.