Good morning,
China in your hand
Many weeks have started with a focus on China, only to end with other issues taking over the market bandwidth. That may happen again this week for, as much as we have a boatload of Chinese data to chew through, news from the UK referendum campaign alongside the Bank of England’s May Quarterly Inflation Report and a volatile oil price could easily sway things one way or t’other.
Through the past quarter Chinese growth concerns have been an accompaniment to issues that have hurt global economic consensus. Fears over the European banking sector and the inability for central banks to loosen policy further in a meaningful manner were the main causes of risk through Q1 as well as the aforementioned concerns over the European political landscape courtesy of the referendum and the refugee crisis.
With those issues largely priced into markets and on the back burner for now, the possibility of another disappointment in Chinese growth, and therefore the growth potential of emerging markets, Asian and commodity currency countries.
Credit where credit’s due
Through the course of this week we will receive the latest number for how much the money supply is growing within the Chinese economy as well as industrial production, retail sales and inflation data. Recent data has shown that the majority of Chinese growth has been driven by an expansion of credit with trade numbers unable to meaningfully drive positivity.
If Wednesday’s inflation numbers pull higher, alongside the emergence of bubble like conditions in local and national credit markets then we could see reticence on the part of the People’s Bank of China to further promote an accommodative monetary policy. Fold in a slowing of manufacturing growth and a retail sales picture driven largely by additional borrowing and the risks start to pile up. Inflation is due tomorrow morning with the remainder due Friday morning.
Bank of England and referendum risk to weigh on pound
The Bank of England Quarterly Inflation Report will get a lot of coverage this week courtesy of it being the last report before the June 23rd referendum and therefore the last round of economic projections that are seemingly independent from either campaigns. We continue to expect the Bank of England to remain schtum on the referendum albeit citing a likely pick-up in inflation and growth from the Bank’s belief that the ‘Remain’ campaign should triumph.
There is an outside chance that BOE Member Vlieghe alters the unanimous consensus for rates to be held at current levels. Vlieghe is the most dovish member of the MPC and has highlighted his inability to look past downside surprises in the UK data. The numbers coming from the UK economy of late have been poor and have contributed to a softening of recent GBP outperformance. The inflation report, alongside the Bank’s rate decision is due at noon.
Yen weaker following Golden Week
Japan’s Golden Week holiday has come to an end and the yen has weakened through the Asian session overnight. This is surprising given the poor payrolls numbers from the States on Friday which saw a meagre 160,000 jobs added and pay conditions remain sombre. If Chinese risk picks up and the rate path of Fed interest rate movements is shown to be increasingly inconsequential then further yen gains could easily be seen.
The data calendar is quiet today
Have a great day.