Swissquote: Sentiment sours on further bad news from China

14 augustus 2023

The week starts on a bad mood as the Chinese property worries escalate with Country Garden suspending almost a dozen of onshore bonds starting from today.

Plus, Zhongzhi Enterprise Group, which has around 1 trillion yuan under management failed on its payments linked to products issued by its companies last Friday, further fueling the stress among investors.

The CSI index gap opened below the 50-DMA this morning while the Hang Seng index lost nearly 2.50%. Investors are also concerned that the economic data due to be released this week in China would further dampen sentiment.

American crude is under pressure around $85.50 at the time of talking, the MACD indicator just turned bearish hinting that we could see some more downside correction in case of weak news this week, and more bears could join to test the $80pb level to the downside.

Likewise, copper futures, which serve as a gauge of global economic health continues its deep dive. Since the start of the month, they have been down by more than 8%.

Some easing in energy and metal prices could be a good thing, as Friday’s producer price index in the US came in stronger than expected, both for the headline and the core metrics. The PPI accelerated 0.8% in July, slightly faster than 0.7% expected by analysts, while the core PPI remained flat at 2.4%, instead of a tick lower to 2.3% as expected by analysts.

The stronger-than-expected set of producer price data sent the US 2-year yield above the 4.90% and the dollar index above the March to now down-trending channel top, and back into a long-term ascending trend.

The EURUSD slipped below its 50-DMA on the back of a stronger US dollar and is testing the 100-DMA, at 1.0930, to the downside, while the USDJPY is about to test the 145 mark. But a potential break of the 145 resistance isn’t very exciting for the yen bears as these are the levels that the Bank of Japan (BoJ) is inclined to intervene to cool down the selling pressure on the yen.

In New Zealand, the kiwi slipped below the 60 cents level in the run up to the latest Reserve Bank of New Zealand (RBNZ) decision due Wednesday. The RBNZ is expected to keep the rates unchanged at 5.5%.

For the UK, the news was, for once, better than expected, as Friday’s GDP data surprised to the upside with a 0.2% growth in Q2. Output in July rose more than double the analyst expectations thanks to a sunny July and Prince Charles coronation, and Cable rose on Friday on expectation that the encouraging figures would fuel inflation and wages, and lead to further rate hikes from the BoE – which expects a more meaningful expansion this quarter.

Though, British economy is the worst performer among G7 since last quarter of 2019, and the deepening housing crisis – with now news of a rise in tax proceeds from property disposals and which is expected to lead to a further selloff by landlords, puts the British growth in jeopardy. Sterling is under pressure this morning against the broadly-stronger USD and the short—term trend remains comfortably negative with a possibility of a slump to and the 100-DMA, which stands near the 1.26 mark, especially if this week’s inflation data points to a further easing in British inflation.

In precious metals, gold remains under the pressure of rising yields and a stronger US dollar across the board. Support is seen before the $1900 per ounce, where stands the 200-DMA, but we can’t rule out the possibility of a further strength in the US dollar this week, hence a slide for gold below the 200-DMA and the $1900 psychological mark.

This week… 

Investors’ focus will shift to US retail sales and earnings from US big retailers, including Walmart, Target and Home Depot. Overall, retail sales in July may show a slight acceleration, but goods prices are not what puts the biggest pressure on inflation, shelter is. Shelter was indeed responsible for 90% of the CPI’s monthly gain last month.

So yes, stronger-than-expected retail sales could fuel the idea that the US economy will fall on its four feet and avoid recession amid the Federal Reserve’s (Fed) aggressive tightening cycle, but it won’t necessarily impact inflation expectations.

But anyway, strong sales data and encouraging earnings could halt bleeding in US stocks, where both the S&P500 and Nasdaq posted their second straight weekly decline last week.