Investors certainly not fond of the headline which prints worst sell off rout in Chinese equity market since 2007. All what it does is make them risk averse and misplace their appetite for riskier assets. China is the second biggest economy of the world and the kind of sell off, which we are experiencing in this region is a matter of a grave concern. The Chinese authorities have already manipulated the market by putting so many restrictions and announcing various different measures to put the foundation. However, nothing is working and investors surely want to take their money out of this market.
This transcript is relaying a very bearish news for the commodity market as traders are considering their options. For them the equation is very simple, if there is no demand in China, this spells trouble for the commodity market and this is constantly punishing this. The sell off in the commodity arena is so intense that it has expanded its wings to soft commodities as well. Investors are hoping that the PBOC will announce more easing measures that could support this market, but the fact is that the bank has already tried this spice in their recipe for four times since November and now it is the time for them to think outside the box. Using a rate cut or announcing other easing measures are not really resolving the disorderly shape of the economy’s fundamental situation. We need a new approach and the bank needs to restore the confidence in the economy.
The Fed will start their two day meeting today and all eyes will be focused on their decision which they will conclude tomorrow. Last time, Miss Yellen, spooked the speculations that a rate hike will most probably will take place in September and this is pushing the dollar higher and making the dollar denominated commodities rout even worse. Nonetheless, the Fed will surely bring the Chinese sell off and commodity rout under their consideration and will tailor their response accordingly. We do not think that Miss Yellen will fan the fire any further by bringing the exact timeline for a rate hike. In fact, there is a strong possibility that she may water down those expectations and use a very dovish approach.
The economic docket does have a few firecrackers for the day. We kick off with the U.S. Consumer confidence number at 13:30 BST and the forecast is for 100 while the previous reading was at 101.40. But, before that, we have the first integration of the UK Q2 GDP data which is supposed to surprise to the upside. The forecast is that this number could add 0.7% growth to the Q1 GDP number. This GDP number has also it’s other implications which translates in terms of increasing the odds that the BOE will embark on the rate hike a lot quicker. A brawny reading for today could certainly create a more division among the MPC members.
In terms of stock news, BP (LONDON:BP) announced their disappointing earnings today, which in many aspects was a no surprise at all given that how badly oil has been under selling pressure. The challenges remain monumental for the firm as the demand remains under pressure. The company profit was washed out by 50 percent on year on year basis and this is not the kind of news that will welcome if you are owning the stock.
But, the energy firm is taking the right measures and have cut their capital expenditure to $4.7 billion in the second quarter. Another important dent in their earnings was the one off massive pay out for the oil spill in Gulf of Mexico. There is no surprise that BP has been clearly under performing in the FTSE 100 and we expect the trend to continue unless we see the demand for oil propping up.
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