Equities move higher, Trump not ready to sign deal with China

Summary:

• Equity markets in Asia trade higher following the strong end of Friday’s trading in the US
• US President Donald Trump signalled he was not ready to sign a trade deal with China
• PBoC to start announcing a new rate for bank loans beginning from tomorrow

Bulls move ahead

The beginning of trading this week has been successful for Asian equity investors with the largest gains seen in Chinese indices - Shanghai Composite is up 1.6% while Hang Seng is rising 1.7% this morning. It seems that traders have been reassured to some extent after the strong end of the past week in the United States where we saw decent gains. On the other hand, we are seeing limited moves in the FX market with slight drops seen in both the Swiss franc and the New Zealand dollar. In terms of macroeconomic figures we were offered overnight it is worth mentioning services PMI for July from New Zealand which jumped to 54.7 from upwardly revised 53. Besides, the Japanese foreign trade data for July showed a deficit of 249.6 billion JPY compared to the consensus of a 194.5 billion JPY shortfall. Exports dropped 1.6% while imports declined 1.2% compared to the same month last year, both readings were above expectations though. In the bond market we see further steepening of the US yield curve following Friday’s announcement that the country is once again considering whether to start borrowing for much longer time by issuing 50-year and 100-year bonds. Since the low on Thursday the 2s/10s spread has already widened roughly 10 basis points and it is trading close to 0.08% this morning. 

China-related news

On top of that, we also got another chapter of the never-ending US-China story as US President Donald Trump tweeted that the US “is doing very well with China, and talking!”, adding however that he was not ready to sign a trade agreement. He also suggested that China needs a trade deal more than the US given the relatively weak condition of the Asian nation’s economy, as Bloomberg reported. Moreover, Trump met with Apple CEO Cook to talk about an impact of tariffs on businesses. Cook was to voice his concerns about competition from non-tariffed Samsung. 

A very interesting report came from the People’s Bank of China as the central bank would start announcing a new reference rate (the loan prime rate) for bank loans starting from tomorrow. A new rate will be linked to the PBoC’s medium-term liquidity facility, as a PBoC adviser told on Monday. The new rate is to benefit small and medium size companies the most by providing them with cheaper financing. The central bank said that the changes announced over the weekend would improve the mechanism used to establish the loan prime rate starting from this month. Hence, in practice companies could experience a real rate cut thus the economy will get monetary loosening.

The Chinese Hang Seng (CHNComp) is trading slightly above its important support as the new week kicks off. The first more pivotal support is localized at around 11100 points. Source: xStation5

In the other news:

• New Zealand PPI for Q2 rose 0.5% QoQ (output prices), and 0.3% QoQ (input prices)