Markets Pause but China Rises

What's New

. Asian equity markets were slightly down this morning, after a strong session yesterday that was based on a rumour that Beijing is trying to create a bull market to compensate for the coronavirus hit and strengthen its position against Washington.

. MSCI Asia-Pacific (ex. Japan) was down 0.25% after it reached a 4.5-month high yesterday. At the same time, Japan's Nikkei was down 0.7% while S&P Eminis were last down 0.26%.

. The CSI300 was higher by 1.7%, after gaining more than 13% in the previous week, as a state-sponsored journal focused on the importance of "fostering a healthy bull market". Analysts note that China is putting all its resources on the semiconductor and IT sectors, aiming to regain its standing in the sectors.

. The question is whether the project is promoted by the Chinese leader and if so the bull market could have a very long way to go. Still, the rally appears to feel risk and prone to setbacks to investors.

. The promoted China rally appears to reflect past experiences, especially during 2007 and the buying binge that followed the crash in 2015 that was largely driven by Chinese retail investors.

. As a result, the Yuan rose to its highest in almost four months, supported by the risk-on mode in the markets, with funds likely rushing in to get a piece of the action in the Chinese bull market. However, capital flows do not appear to be large.

. In the other side of the Pacific, US services activity rebounded in June, reaching almost pre-pandemic levels. On the downside, new cases continue to surge in several states with some restaurants and bars closing again.

. In other currency news, most of the world's main FX pairs were flat, including the Yen, the Euro, and the Aussie, where the RBA left the interest rate at 0.25%.

. Gold was last up slightly, with the futures standing around $1794, very close to the important $1800 mark, as investors appear to be hedging their stock market exposure with Gold.

. Oil prices were down, despite OPEC's and Russia's pledge to continue with the production cuts, ahead of the stockpile release today.

. Earlier today, Japanese household spending was down 16.2%y/y in May, while the country's leading index was at 79.3 versus 77.7 in the previous month. Both indicators suggest that the country's recovery is still a long way ahead.

. Similarly, Germany's industrial production was up 7.8%m/m but way off the projected 11%.

Up and Coming

. In the UK, house prices are expected to have dropped on a m/m basis, while in Italy, retail sales are expected to have rebounded.

. In Canada, the Ivey PMI is forecast to have moved to the growth region, while job openings in the US are seen to have increased by 4.7 million, but optimism to have remained below 50.

. For oil traders, the API weekly crude oil stock will be released later today.

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