Trade and inflation data out of China over the weekend do not augur well for the battered commodities market this week. Export growth massively undershot expectations for a 1% decline, declining by 8.3%. This is bringing CNY strength into focus, and could spark moves by the government to lower the currency for increased export competitiveness.
Chinese producer prices also declined to their lowest level since 2009 at -5.4%. This is particularly being driven by oversupply in the industrial and mining sectors, which play a dominant role in the economy for north and northeast of China. While much of the east coast has developed services sectors and are bearing up well under the slowdown, the government is increasingly concerned about supporting the industrial north.
Further rate cuts and fiscal stimulus into fixed asset investment are likely to be in the pipeline. China has announced CNY 1.3 trillion of stimulus into the second half of the year, however much of this is moving the debts from off-balance sheet local government financing vehicles (LGFVs) onto the government balance sheet through formal bond issuance, a process that has been ongoing throughout the year.
Chinese stock markets rallied on news that CNY 900 billion had been spent to support the stock market, out of a total CNY 2 trillion – indicating that there is plenty of dry powder left. It will be interesting to see if the poor economic data over the weekend affect the market today. Keen attention will be paid to Wednesday when industrial production, retail and investment data are all released.
US Fed: more he says, he says
Non-Farm Payrolls have pushed the market pricing of a Fed rate hike in September up to 54%. While they came in slightly under the consensus of 225,000 at 215,000, they were comfortably above 200,000 – a key level in most people’s minds. This saw the dollar index rally up to 98.33, but ended up closing at 97.56, down -0.27% for the day.
With each data point that comes in near expectations the likelihood of a September rate hike continues to steadily increase. This week everyone will be closely watching US retail sales, which come out Thursday. We also see the Fed’s Dennis Lockhart speaking today. Given that it was his comments last week that sparked a lot of the US dollar and treasury market moves, it will be important to see if he continues to firmly support a September rate hike. Fed Vice-Chair Stanley Fischer is also scheduled to be interviewed by Bloomberg today.
RBA
Friday’s Statement of Monetary Policy solidified expectations for the RBA to hold rates at 2% for a prolonged period of time. While the unemployment rate lifted to 6.3% last week, the recent volatility in Australia’s employment statistics mean that the RBA is likely to look through this. It looks like it would take a serious economic deterioration for the RBA to consider further rate cuts at this time. With rates on hold combined with Glenn Stevens’ new happiness with the AUD exchange rate, further declines in the AUD are likely less likely to be driven by the RBA.
The ASX at the open
The ASX had a miserable week last week, down 3.6% on the week. This was driven by concern over the major banks’ refinancing needs to meet APRA’s new CET1 10% requirement by the middle of next year. There were also major declines from resource-related stocks like Orica Ltd (ASX:ORI) and Iluka Resources Ltd (ASX:ILU) last week, indicating further pain ahead for the sector.
Ansell Ltd (ASX:ANN) earnings came out slightly below expectations with NPAT US$187.5 million below the consensus of US$189.7. Large currency declines in Brazil and Russia have dinted ANN’s sales in these markets. Considering the stock has risen 9.5% this year, its numbers probably have not performed well enough for it not to see declines today.
JB Hi-Fi Ltd (ASX:JBH) have beat estimates on almost all metrics, with NPAT of A$136.5 beating the consensus of A$131.1 million. Despite AUD weakness increasing their margins from increased export prices, sales growth continued to be strong. The stock is up 24% this year with significant short interest, expectations are for the stock to bounce today on the good numbers and short covering.
Bendigo And Adelaide Bank Ltd (ASX:BEN) are expected to report NPAT of A$433 million today as well. Projections are for further solid growth, but much of this has been driven by rising house prices. With APRA’s intent to slow down the housing market somewhat, investors will be looking for BEN’s management to elaborate on how they plan to continue strong lending growth.
National Australia Bank Ltd (ASX:NAB) have also reported their 3Q unaudited report. The big news out of that is that NAB is sitting at 9.94% for its CET1 ratio after its $5.5 billion capital raising earlier in the year, putting it well ahead the other Big Four. Bad and doubtful debts were also 15% lower, in contrast to ANZ which saw a 13% increase. This is set to see the stock outperform the other banks today. CBA reports earnings Wednesday morning, and the market is readying itself for it to announce a capital raising of anywhere in the region of $2-7 billion.