U.S equities managed to squeeze out moderate gains on Friday despite general pessimism surrounding China’s latest trade data. Exports of Chinese goods and services rose 1.0 percent annually in July from of 11.3 percent in June, while imports rose at an annual pace of 4.7 percent, down from 6.3 percent. The trend of subdued domestic demand was also made apparent with the release of new loan data, which showed bank lending slid 41.3 percent in the month of July. Overall, China’s trade surplus shrank to $US25.15 billion in July from 31.72 billion in June. Nevertheless, the S&P500 managed to notch up its sixth consecutive day of gains, finishing the week up just over 1-percent.
Earlier, European equity markets were pressured by China’s less-than-inspiring trade data with benchmark indices finishing in the red, however, the Euro was able to regain composure of the course of U.S trade after earlier falling to intra-week lows of $US1.2240. Likewise, the Aussie dollar found its feet after earlier sliding on the back of the RBA’s Statement on Monetary Policy, which flagged the economic risks of a strong Australian dollar in what resembled an attempt of verbal intervention.
With little in the way of top-tier directives from a local perspective, we expect any major shift in price action to be driven by offshore risk trends. Although we can demonstrate an increase in offshore flows have provided a positive backdrop, the Aussie dollar remains very much a risk currencies in speculative terms, therefore any major shift in risk trends will continue to govern short-term price action. Local mid-tier releases this week include NAB business confidence, Westpac Consumer confidence, and average weekly wages.
The week ahead from the U.S will see reasonably large event risk keep markets on their toes. The release of consumer price data on Wednesday may add some spice to the QE3 debate, with headline inflation expected to moderate to a yearly pace of 1.5 percent in July from a previous 1.7 percent, while core inflation will probably remained unchanged at 2.2 percent. Also in focus this week are data points on the health of U.S retailers, Industrial production, Philadelphia Fed manufacturing Index, and consumer confidence data from the University of Michigan.
Key to the Euro’s fortunes this week will be Tuesday’s release of preliminary GDP for both Germany and the Euro-Zone. German Gross Domestic Product is expected to record second-quarter growth of 0.2 percent, or 1.1 percent in yearly terms, while the Euro area is expected to show a second-quarter contraction of 0.2 percent or 0.4 percent fall from a year earlier. Tuesday will also see the release of Euro-Zone industrial production and the ZEW survey for both Euro-Zone and Germany. Thursday’s Euro-Zone consumer price data will no doubt spark further debate over the likelihood of near-term interest rate cuts, with headline inflation expected to fall 0.5 percent in July to represent annual inflation growth of 2.4 percent – unchanged from June. Nevertheless, August is a month of rest and relaxation for Europeans which is expected to see lighter than usual liquidity govern market direction. With politicians and central bankers out sunning themselves on their yachts or secluded getaway destinations, the lack of unscheduled news flow may act to keep conditions fairly subdued, with exception to any significant upsets from scheduled releases or from across the Atlantic.