Good morning,
China Stimulus working?
Good news from China overnight has done little to lift what is quite a sombre mood in global markets. Imports into the world’s largest trading nation contracted at their weakest pace since 2014 with the hope being that measures to stimulate the Chinese economy through housing and infrastructure channels are starting to work. Of course, in the short term, a continuation of this better news may only come on the back of continued stimulus. Exports fell by 4.1%; while commodity price increases may have helped imports, sales of refined or finished goods are still weak as inventories are drawn down and demand in the EU and US remains average.
Money is still leaking out of China into China- Hong Kong in capital flight. Imports, paid in dollars, from China – Hong Kong rose by 242% on the year to May. Over-invoice for goods from China – Hong Kong and stash the cash elsewhere is a ploy that has been popular for years.
Overall the news hasn’t done too much but yen strength has continued for the second day on generalised risk aversion post-Friday’s payrolls and as the UK referendum gets closer and closer.
Referendum Watch – 15 days to go
Last night’s ‘debate’ with Cameron and Farage taking questions from a studio audience was an exercise in heat more than light and will have done little for voters at the margin we feel. Farage’s applause lines of not getting on with Juncker and bringing back British passports will have gone down well with Brexit supporters while Cameron spent too long on immigration – a weak area for the Remain camp. Sterling has retraced most of the recent losses caused by polls showing Leave ahead but remains skittish. One month volatility on sterling is still extending to new highs and is making short term options cover expensive.
The next ‘debate’ is Andrew Neal interviewing George Osborne on BBC1 at 7.30pm.
UK industry unlikely to be shining
UK data due at 09.30 includes the latest industrial and manufacturing production numbers. Every piece of data at the moment is being viewed through a prism of the vote, especially the poor data that the UK economy has reported in the past quarter or so. Last month’s industrial production numbers which only grew by 0.3% on the month suggested that new orders were being damaged by referendum fears whilst home grown issues such as the National Living Wage and the government’s fiscal consolidation also weighing.
There is little to suggest that a similar trend was not evident last month as well and the consensus forecasts are looking for contractions in both output measures.
The Day Ahead
Elsewhere the data calendar is rather bereft with few central bank speakers to pay attention to.
Brexit polling aside, we would expect today’s markets to remain relatively sideways and quiet.
Have a great day.