Financial market research and analysis

The week started with undecided risk sentiment on mixed Chinese data.

Chinese equities began the week on a negative note, after the data showed that China’s GDP grew 1.6% in the second quarter, a touch better than 1.5% penciled in by analysts and up from 1.4% printed a quarter earlier. The yearly growth summed up to 6.2% by the end of Q2, as expected, down from 6.4% printed a quarter earlier. Exports slowed, imports slumped, and credit growth hindered.

But other data showed that the emerging market giant stepped up production and investment. Fixed assets investment excluding rural assets increased from 5.6% to 5.8% between January and June, as the industrial production surged from 5.0% y-o-y to 6.3%. Retail sales jumped from 8.6% to 9.8% as well. The slowdown in Chinese economy leads to think that China is giving a solid support to the economy to soften the impact of the trade war with the US and will certainly continue doing so in the coming quarters.

Shanghai’s Composite eased as much as 0.80%, but erased losses as optimism from June data outweighed the disappointment on GDP slowdown. Technology stocks in Shanghai rallied 2.20% on news that the US companies may get approval to restart selling to Huawei in the coming two to four weeks, once the US Commerce Department has settled what’s the best for the national security interest.

But now, China is preparing to impose sanctions on US companies after the US approved arm sales to Taiwan, sidestepping the one-China policy. The geopolitical tensions could of course worsen the already complex relationship between the US and China.

Elsewhere, Japan was closed due to bank holiday and stocks in Hong Kong dropped 0.70% before stepping in the positive territory. Though the appetite for HK stocks may remain limited on escalating social unrest. Protesters were again on the streets over the weekend. Clashes with the police made the headlines. Now, protesters claim more than the withdrawal of the controversial extradition bill and the tensions with Beijing mount. Also, HK chief Carrie Lam offered to step down several times, but her request to resign has been refused by Beijing.

Antipodeans outperformed their G10 peers as China showed signs of getting its head above water despite the ongoing trade tensions with the US.

The NZDUSD traded up to its 200-day moving average (0.6716), the AUDUSD remained bid above the 0.70 mark. The US dollar was slightly better bid against the rest of the G10 currencies, as the US 10-year yield consolidated at a month high. The expectation of a 25-basis-point cut from the Federal Reserve (Fed) in July is fully factored in the asset prices. But the downside risks for the US yields loom as weak US economic data could step up the pricing of a 50-basis-point cut at the next FOMC meeting, due 30/31 of July.

Speaking of data, the Empire State Manufacturing index will be in traders’ focus on Monday. Analysts expect a slight improvement in July number (expectation is 2), after last month’s figure recorded an unprecedented drop to -8.6. Strong data could call for a further correction in US yields and the dollar, while weak data could spur expectations of a 50-basis-point cut and weigh on the greenback.

The euro and pound treaded water against the greenback. The EURUSD traded in the tight range of 1.1264-1.1275 and Cable remained within the 1.2550/-1.2582 area.

In the dearth of major economic data today, the US dollar could be the prime driver in currency markets.

FTSE is set for a flat open at 7506p.


US earnings season begins

US equity futures were flat in Asia, after the S&P500 closed last week on a record high (3013).

Big US banks will release second quarter results this week and could preventively lower their net interest income outlook as the Fed prepares to cut interest rates in the coming quarters.

Investors will watch Citigroup results today, JPMorgan and Goldman Sachs on Tuesday, Bank of America Merrill Lynch on Wednesday and Morgan Stanley on Thursday.

Else, Amazon Prime Day will kick-off today and the two-day e-commerce festival could give an insight on the consumer sentiment globally. Similar to Jing Dong’s 618 and Ali Baba’s Single’s Day in China, these e-shopping events suggest that promotional prices encourage consumers to consolidate their non-urgent purchases to a single day. Also, impulsive acquisitions could ramp up during the promotional period, which could give a rapid intuition on the consumer mood. Last year, Amazon’s Prime Day event triggered $3.9 billion worth of sales. This year this number could inflate up to 50% according to Coresight Research.

Also, tech investors will monitor IBM and Microsoft Q2 results on Wednesday and Thursday respectively. Results will show the impact of the US – China trade war and Huawei tensions on the US tech companies.

Globally, businesses that are less exposed to US - China trade tensions, such as healthcare, real estate and utilities are expected to have outperformed in the US, while sectors with global exposure, such as technology, energy and transport, probably underperformed.