Chinese stocks climb, MXN gains on NAFTA

Summary:

• Chinese equities jerk higher fuelled by another health increase of industrial profits

• US dollar trades flat, EM currencies gain except for ZAR falling 1%

• Mexican peso moves higher in the hope of striking a NAFTA deal ‘soon’

Monday has been relatively calm in terms of major currencies mainly due to holiday in the UK unlike Chinese stocks which have gained meaningfully. The Hang Seng (CHNComp on xStation5) is surging 2.5% while the Shanghai Composite i rising 1.6% as of 6:25 am BST Monday. These gains came after a decent close of trading on Wall Street on Friday where we experienced a new all-time high on the SP500 (US500). Let us note that over the weekend we were not offered any new revelations concerning trade wars, hence these rises should not be particularly ascribed to such developments. Basically, ‘low-level’ talks between the US and Chinese officials ended up with a debacle but the fallout had been expected so investors were not disappointed at all.

Chinese industrial companies’ earnings kept their solid pace after July. Source: Bloomberg

During the Monday’s session we got the earnings data from China illustrating aggregate profits of industrial companies. Overall, profits grew 16.2% in annual terms in July making a fall from 20% in June though. Nevertheless, on a year-to-date basis profits have totalled 17.1% after July compared to 17.2% at the end of the first half of the year. Note that the data covers large companies with annual revenue exceeding 20 million yuan from their core operations.

The Hang Seng seems to be en route to 11200 points after the index managed to stay above its crucial support at 10440 points. Source: xStation5

As far as the currency market is concerned, the US dollar is trading flat this morning while the Japanese yen is gaining a little more than 0.1% as of 6:43 am BST. A bit more livelier moves may be noticed elsewhere. For instance, the South African rand is losing almost 1% against the US dollar while the Mexican peso is rising 0.6%. When it comes to the former there is still the same issue - land expropriation and related concerns about the country’s banking system (we provided more details about this theme last week). In turn, the MXN is benefiting from upbeat information pertaining to NAFTA negotiations between Mexico and the US. On Sunday Mexican Economy Minister Ildefonso Guajardo said that both sides “are close to squaring away bilateral differences on the North American Free Trade Agreement and resume talks on Monday morning”. Should a deal between Mexico and the US be achieved, then an additional week (at least) could be needed to include Canada - such reports were brought by Reuters on Sunday.

The USDMXN keeps trading within the ascending channel seen at the chart above. The major support level might be localized nearby 18.52 while the first more notable resistance could be set at 19.30. Once the pair breaks through the former level, it could more as low as 17.45 which sounds reasonably when a NAFTA agreements is finally reached. Source: xStation5