China’s investment keeps slowing down, stocks gain around the globe

Summary:

• A package of releases from the Chinese economy turns out to be mixed

• Asian equities gain momentum following decent rises on Wall Street

• US dollar softer in the morning, it is poised to mark its poorest week since January

Over the Asian session we were offered a slew of macroeconomic releases from China and most of them managed to meet expectations. However, one particular disappointment came from an investment front it overshadowed firm numbers concerning industrial output as well as retail sales. Fixed-asset investment rose only 5.3% during the first eight months this year compared to the same period last year. The print turned out to be clearly below the median estimate of 5.6% assuming a bounce from a 5.5% gain registered in July.

Fixed-asset investment keeps slowing down, the effect is seen in infrastructure investment in particular. Source: Bloomberg

The data could be puzzling taking into account a variety of measures implemented by the local authorities in recent months. One may suppose that those tools have yet to kick in and their effect will come with a delay but it should not be particularly relevant anyway. Why do we think in this way? Our thinking is based on credit data showing better than expected numbers for August even as the overall bank lending continues shrinking on the back of the campaign to reduce leverage. Therefore, we think that a gradual rebound in investment in the upcoming months is unlikely to change the underlying trend in the China’s economy - a controlled growth deceleration. The anticipated continued deceleration suits the view regarding a slowdown of the global economy as well as risks related to Chinese trade due to tariffs. Thus, the government should remain on track to keep on deleveraging the highly indebted economy as consequences stemming from this process should outweigh benefits from lower debt. When it comes to other numbers retail sales grew 9% YoY in August beating the consensus at 8.8% whereas industrial production picked up 6.1% and matched expectations.

The Dow Jones (US30) remains on course to continue climbing in the upcoming days looking at the chart above. The index successfully tested the support of 25800 points and therefore is broadly expected to march north. Source: xStation5

On the equity front we got decent gains on Wall Street which then continued during Asian hours trading. The NASDAQ (US100) jumped 0.75%, the SP500 (US500) increased 0.55% while the above-mentioned Dow Jones (US30) grew 0.6%. Where did gains come from? Apple was placed among the largest contributors gaining 2.4% on the back of lowered trade frictions (let us remind that the US proposed to hold another round of talks with China). Investors in Asia followed in US indices footsteps experiencing decent gains as well. The NIKKEI (JAP225) rose 1.2% while the Chinese Hang Seng (CHNComp) is still trading being 0.8% higher. Stocks in Australia also added up to their gains ending the Friday’s session with a 0.6% gain.

Looking at currencies one may notice that the US dollar is again lower this morning. It is worth noting that the US currency is set to end this week with its largest drop since January. Keep in mind that inflation numbers published this week could be worrisome for some more hawkish member of the Federal Reserve - the yesterday’s inflation was depressed mainly by apparel prices. Therefore, one may suppose that risks related to the September meeting for the dollar seem to be tilted to the downside.

The dollar index seems to be en route to continue falling in the days ahead and the latest inflation data seems to confirm this view. The first target for bears might be found somewhere around 92.5. Source: xStation5

In the other news:

• New Zealand manufacturing PMI slipped to 52 from 52.1 in August

• Oil prices trade flat this morning ahead of the Baker Hughes release