Financial market research and analysis

Stocks in Asia have started the week on a firm footing after data showed construction activity in China struck a multi-year high, boosting basic material shares. Other data showed China’s service sector slow. The hand of the Chinese state is clear to see in these numbers. Authorities are artificially boosting growth through, perhaps uneconomically viable constructions whilst sectors with less state influence sag under real market forces. Japanese equities were flat with investors caught between watching the strong yen after a rebound in industrial data and corporate earnings from the likes of Mitsubishi.

Shares of HSBC jumped by 3% in Hong Kong as second-quarter results beat expectations and the bank promised a new share buyback scheme of up to $2bn. We’d expect a positive start for HSBC’s London shares too after these results. HSBC’s exposure to China during a time of expanded government stimulus and Europe experiencing its best growth since the financial crisis  has helped keep the banks restructuring plan well on track.

European stocks look set for a mixed start as traders weigh encouraging Chinese construction data against the negative-effect of rising domestic currencies on the shares of European exporters. The possibility of renewed selling following last week’s jitters will be firmly on trader’s minds. Sanofi has raised its outlook for 2017 after reporting strong sales growth in Q2. It counters some the negative news in the pharmaceutical industry last week from AstraZeneca. News that MUFG is reportedly looking at Amsterdam as a European base to replace London could see UK bank shares negatively diverge from those on the continent.

The US dollar remains soft on Monday with USDJPY edging down towards 110 while GBPUSD holds above 1.31. EURUSD remains above 1.17 but is edging back from its 2yrs highs ahead of key European inflation data. Eurozone CPI is expected to remain unchanged at 1.3% y/y in July, which takes some of the pressure off the ECB to reign in its economic stimulus early.

The price of oil is holding onto last’s week’s huge gains. The one-two punch of US oil companies reporting low spending plans and a drawdown in Us inventories was too much for oil bears who are rapidly covering shorts. Gold is pulling back from $1270 per oz.

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