Asian markets traded mostly higher, but the element of caution is still flashing on the trader’s dashboard. Thanks to the Chinese Caxin services number, which was adverse again and below the expectations. However, as always, traders are reading this as a good sign, because they are expecting more abutment from the People Bank of China. Expectations for more quantitative easing on the back of a feeble economic print has become the new norm and the central bank’s are at the mercy of their country’s economic health.
Chinese Caxin services PMI data plays a significant part when it comes to the country’s GDP number and today’s reading has made headwinds even more strong for the PBOC who will be coming out with their new fresh GDP growth forecast soon. The 7% GDP growth is out of the window and now we are looking at 6.5% and perhaps, this where the bank will be pitching their new target. Although, it is still a very decent number, but immensely grisly in contrast to double digit number which the economy used to have. The fact remains that the country is going through structural changes and the GDP growth of 6.5% is still a number which is worth paying respect. What the PBOC is lacking is whipping the reforms and this arena has not seen much dramatical changes.
Traders are optimistic that the PBOC will implement appropriate measures to stem this frailty and this will address the infrastructure and export arena which is in dire condition. The stability of the Chinese currency is another affair which the bank is consistently battling and unless they can stabilise this, the export sector may remain under thwarting for some time.
As for the precious metal, it has taken off once again in the face of strong US economic data, as this inflate the odds of a further rate hike for this year. This will reverberate all the unnecessary risk averse behaviour. The US economic numbers released this week are commendable and it is acutely audible, that it has become worrisome for investors. The US Beige book numbers and the ADP data, all have shown favourable outcome for the Fed and if the final piece of the puzzle- the US NFP also confirms another stout reading, then it will not be no surprise to cite the odds of a further rate hike incrementing again.
As for the European futures, they will be focusing on the upcoming services PMI numbers Germany, Italy and France. We do know that the manufacturing PMI numbers were scanty and inflation has already dipped lower and if today’s number show further frailty, then the president of the ECB, will have no alibi not to spur more QE. These readings will also impact the bond yields on especially, the German five and two year yield. By looking at the curve of these bond yields, it ostensibly audible, that the ECB may be lowering their deposit rate even further by another ten basis points.
DISCLOSURE & DISCLAIMER: The above is for informational purposes only and NOT to be construed as specific trading advice. responsibility for trade decisions is solely with the reader.
by Naeem Aslam