China’s stocks rebound amid tepid trading on Monday

Summary:

• After taking a hit on Friday, China’s stocks have recovered at the beginning of this week
• China’s inflation data as well as a speech of PBoC’s Yi came over the weekend
• The EU prepares an additional payment for the UK if a Brexit deadline extended

Chinese stocks go higher

The last trading day of the past week was exceptionally weak for the China’s equity market, hence some recovery could have been expected to the start of the new week. Indeed, both the Shanghai Composite and the Hang Seng (CHNComp) have risen and at the time of preparing this analysis they are trading 0.8% and 0.7% higher respectively. Note that we got inflation data for February over the weekend showing headline inflation rising 1.5% in annual terms, in line with market expectations. In turn, PPI grew 0.1% YoY, missing the median estimate of a 0.2% YoY rise. On top of that, we got also a speech of PBoC’s leader Yi Gang who said that there was some room for reserve requirement ratio cuts but not too much. This may indicate that the Chinese central bank is quite unwilling to ease monetary conditions much more. On the other hand, Yi reiterated his previous comments suggesting that the bank would keep credit growth in line with GDP growth while small firms might count on better support. One point from his speech deserves even more attention. Namely, Yi did not mention a one-sided pledge made by Beijing to hold its currency stable, the aspect raised many times by the Trump administration particularly in the ongoing trade negotiations. Keep in mind that by devaluing the yuan China aims to counteracts higher tariffs slapped by the United States. Yi Gang spoke during the annual National People’s Congress legislative meetings.

The China’s major stock index slumped on Friday, however, it managed to recover at the beginning of the new week. Note that a rebound occurred in the vicinity of the important support level placed at 11200 points. Source: xStation5

Powell focuses on retail sales

Over the weekend we also got a speech from Fed’s Jerome Powell who underlined that the Federal Reserve would be watching retail sales data due Monday for signs that American consumer spending had bounced back from a surprisingly weak end to 2018. Apart from this line, Powell said that the current policy rate was now “roughly balanced” and repeated that he did not believe Donald Trump had the power to fire him. According to him main risks to the US are from abroad whilst the US outlook is a positive one. Referring to the stock market Powell said that valuations were mostly at “normal” long-term levels. Market participants give no chance to another rate hike in the US either this or the next year. Instead, the interest rate market assigns approximately 25% odds to see a rate cut by the year-end. We stick to our view that the US central bank could lift borrowing costs once more in the third quarter. Thus, given the fact that the market does not believe in such a scenario we see short-term upward risks to the US dollar when the market begins repricing the rate path.

Meanwhile, the US dollar index (USDIDX) is struggling with the key resistance at around 97.50. If this level is broken, then bulls would eye the upper bound of the channel. Source: xStation5

In the other news:

• The EU is expected to increase a Brexit divorce payment of the UK asks for a deadline extension (the base scenario), according to The Telegraph; the GBP is trading 0.25% lower in anticipation of a series of votes

• New Zealand’s credit card retail sales grew 0.9% MoM in February

• Japan’s M2 money stock held ticked up to 2.4% YoY in February after being revised down to 2.3% YoY in January

• Japan’s machine tool orders slumped 29.3% YoY in February