It’s been an underwhelming start to the week in financial markets with the eternal optimism of investors clashing with the reality of Chinese economic data.
There’s a bizarre willingness to turn a blind eye to the economic reality at the moment as long as the Fed doesn’t raise rates too fast. That doesn’t feel particularly sustainable but as we’ve seen so often before, it can last much longer than you may expect.
Rate cut does little to ease Chinese fears
The economic data from China overnight was very disappointing, to put it mildly. Combined with the lending figures on Friday, it does not paint a good picture of domestic demand or the growth outlook. Retail sales were particularly weak, while fixed asset investment and industrial production were also well below the consensus. It seems the reopening boost was both uninspiring and short-lived.
And yet the PBOCs decision to cut the MLF and 7-day reverse repo rates by 10 basis points overnight came as quite the surprise. It seems no one saw that coming and it’s understandable why. Loan demand isn’t struggling because of high rates, it’s Covid lockdowns, ongoing property market uncertainty and the global environment. This rate cut won’t change any of that. But it does mean a cut to the LPR is now almost certain.
Japan recovering as inventories hold back Q2 GDP
The reopening in Japan boosted spending in the second quarter, although the GDP reading slightly missed expectations thanks to a decline in inventories which lifted the reading in Q1. These fluctuations can largely be ignored and the underlying picture remains positive for the Japanese economy. Of course, the global picture is increasingly gloomy and uncertain which could weigh into next year.
Can bitcoin break $25,000?
Bitcoin has tested the water above $25,000 and been pushed back on the first attempt. It seems the cryptocurrency, like many other instruments, is testing a potentially significant barrier following the recent recovery and we may be seeing some profit-taking. Whether that becomes a full rotation lower isn’t clear yet but it doesn’t appear to have the momentum for a breakout at this time.
For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary.
His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News.
Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
