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China’s trade data trends weaker

A mixed set of leads sets Asia up for a muted start to a week focused on monetary policy. China’s trade data had been one to disappoint over the weekend after further monetary stimulus announcements.

No front-loading effect in August for China

A series of releases had been seen over the weekend providing a mixed picture for the global economy. While the US labour market data resilience was noted on Friday, China’s latest August trade data which arrived below consensus for exports had dampened the mood for Asia markets going into the fresh week. At -1.0% year-on-year (YoY), this had been below the market consensus of 2.0% growth, which had likely been underpinned by front-loading expectations ahead of the September 1 additional tariffs imposition date. Even though imports came in slightly better than expected at -5.6% YoY, this nevertheless placed the overall trade balance at a decline of more than what had been pencilled in. Coming on the tails of Friday’s easing announcement by the People’s Bank of China (PBoC), this throws a spanner in the works for the good works of monetary policy optimism.

Against the abovementioned leads for Asia markets, the risk-on mood carrying on from last week appears muted. Early movers in the region across the Australian ASX 200 and the Japan Nikkei 225 had both been seen in moderate gains, waiting on further monetary policy updates this week to stimulate the rally. All said, however, one would note that the FX market had reacted in the favour of the Chinese currency following the PBoC update. Although it had largely been within expectations post the State Council meeting to see the 50 basis point Reserve Requirement Ratio (RRR) cut and further easing expectations, this sustains the positive sentiment within the Chinese market following last week’s trade talk announcement. USD/CNH trekked down to the 7.102 support when last checked. Watch a break here for prices back into the earlier consolidation zone.

Source: IG Charts

September Fed cut expected despite favourable outlook

Tuning back to the updates from the US on Friday, despite wage inflation coming in ahead of consensus, the noticeably softening trend for payroll additions continued to lift rate cut expectations. Fed chair Jerome Powell’s latest balanced rhetoric on Friday reflected the Fed’s view on resilient economic conditions and reassured the market from recession concerns, though at the same time once again reinforced the odds of a September cut. Consequently for the greenback, this had seen to a slight dip in strength from last week for the US dollar index, but nevertheless keeping to its uptrend. Ahead of the September 17-18 meeting, it remains with data this week to guide the balance for the forward guidance that will be key. US CPI and retail sales amongst the key data to watch on Thursday and Friday respectively.

Source: IG Charts

Friday: S&P 500 +0.09%; DJIA +0.26%; DAX +0.54%; FTSE +0.15%

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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