Awaiting Chinese numbers

China’s data dump

While Wall Street had closed out last week in gains, lifted by the Fed cut optimism, Asia markets are not looking to inherit this glow going into the start of the new week. China’s Q2 GDP, alongside June’s retail sales, industrial production and urban fixed asset investments will be items due 10am local time and the market is not expecting all rosy numbers as detailed in our Asia week ahead piece. Given the escalation of trade tensions and the implementation of tariffs, China’s GDP is due to show signs of slowing, one to watch. Meanwhile the high frequency industrial production figure could improve from the disappointment of 5.0% in June, though retail sales and urban fixed asset investments look set to soften. In turn, a sense of cautiousness can be seen setting in at the start of the fresh week, weighing on Asia going into the open.

Data divergence

Notably, the continued slowdown in China’s June trade and inflation numbers coupled with the significant miss of Singapore’s Q2 GDP last Friday had been evidences of the economic deceleration manifesting in the figures. This had been more apparent in Asia than perhaps the US in the past weeks with the latter seeing surprises in both jobs and inflation numbers. While Fed support have been a key driver, the divergence (in purple below) seen between the likes of the comprehensive S&P 500 index in the US and the MSCI Asia ex-Japan index had also continued to accelerate into last week.

Expectations are for the string of Asia indicators to continue reflecting the weakness that could weigh on the market, though any policy support would be watched particularly from the likes of China amid the impetus derived from these readings. As for the US market, it will be one watching earnings this week with Citigroup kickstarting the season. A negative one expected from us could finally bring some gravity to prices that had been decidedly defying it.

Source: Refinitiv

On FX, it does appear that the likes of the US Dollar Basket had been shifting towards a flat pattern following the departure from the uptrend. As told above, data surprises had been noted in the past weeks to support the greenback. On the other hand, against the conviction of Fed support which weighs on the USD, a state of consolidation could set in for the near-term. Look to the string of data in the week for guidance alongside a couple of Fed talks prior to the pre-FOMC blackout period.

Source: IG Charts

Friday: S&P 500 +0.46%; DJIA +0.90%; DAX -0.07%; FTSE -0.05%