Summary:
- Equity markets bounced back sharply in the US, Asian investors have shared less optimism though
- Chinese industrial production reaches its 17-year low, retail sales and fixed asset investments also disappoint
- The Italian government will face a no-confidence motion on August 20
Markets rally
After the news from US President Donald Trump regarding delaying imposing duties on Chinese goods on September 1 markets bounced back sharply. This trend was especially seen in the US where the NASDAQ rose as much as 1.95%, while the SP500 closed 1.5% higher and the Dow Jones rebounded 1.4%. Looking at what has happened in Asian markets one may become a little bit less optimistic as rises have been less impressive. The Japanese NIKKEI has been the best index there as of yet, it has gained 1%, whereas Chinese main indices have jumped roughly 0.8% and the South Korean KOSPI has added 0.7%. Bullish sentiment is no longer shared by FX traders with EM currencies sliding slightly against the US dollar this morning, the falls have not been particularly significant though. On top of that, a reaction in the US bond market is worth investors’ attention as a bounce in yields have been subdued given how sharply equity markets increased. Namely, the US 10Y bond yield is currently trading at 1.676%, only less than 4 basis points higher than before yesterday's announcement from Donald Trump (despite . Simultaneously, the 2s10s yield curve has steepened almost imperceptibly to 4 from 2 basis points from before the news. It shows that investors remain quite cautious when it comes to the outlook for the US economy despite a tariffs’ delay. Finally, let us remind that this round of duties was expected to be particularly harmful to US consumers as they were to include electronic devices and other such products being eagerly imported from China. In our view, running for the second term Donald Trump cannot let himself to disappoint his voters, that is why he decided to hold off on imposing more tariffs.
NASDAQ (US100) jumped on Tuesday in response to the upbeat news from Donald Trump. The US100 reached its highest closing level since the start of August. Source: xStation5
Below the line
A bag of macroeconomic releases from the Chinese economy for July turned out to be a great disappointment as all values came in below expectations. The largest one came from industrial output rising only 4.8% YoY compared to the consensus pointing to a 6% YoY increase. Retail sales grew 7.6% YoY, below the expected 8.6% YoY, while fixed asset investments (excluding the rural sector) rose 5.7% YoY on a year-to-date basis, the consensus had called for a 5.8% YoY rise. In a comment to the data the China’s National Bureau of Statistics said that economic growth is generally stable while weaker retail sales resulted from weakish auto sales. Markets’ response to the bag of Chinese releases has been muted, however, it has certainly helped Asian indices erase some of their gains.
Chinese data for July disappointed across the board. Source: Bloomberg
In the other news:
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The Italian government will face a no-confidence vote on August 20
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German economy contracted 0.1% QoQ (SA) in Q2, matching the median estimate
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Romanian economy expanded 1% QoQ in Q2
