Danske Daily: Better-Than-Expected Chinese Data Calms Investors' Fears

Today we have a very thin calendar with Spanish house transactions being the most interesting release. The index is at a very low level reflecting that the Spanish housing market continues to look fragile.

During the week euro area GDP figures will reveal whether the euro area has ended its recession. We consider the end of the recession to be on a knife-edge but we have revised our euro area growth forecast for Q2 up from -0.0% q/q to +0.1% q/q.

In the US the most important release during the week is advanced retail sales. We expect to see an increase in the core measure of retail sales, which will imply a regain of some lost ground.

Selected market news
Japanese GDP numbers released overnight were in general weaker than expected, as annualised GDP rose 2.6% s.a. q/q compared to an expected 3.6% gain and a revised 3.9% annual growth rate in Q1. Especially, business investments disappointed by falling 0.1% q/q, whereas consumer spending rose a healthy 0.8% q/q. Hence, it seems that consumers continue to believe in ‘Abenomics’, whereas the business sector seems less convinced.

Today’s numbers will be watched closely in respect of the ongoing debate whether the Japanese economy is strong enough to bear a planned increase of 3 percentage points in the sales tax by April next year. Prime Minster Abe has to decide over the coming months whether to proceed with the plans.

USD/JPY dipped below 0.96 initially on the news but has now recovered slightly, trading at 0.9650, reflecting that Nikkei has recovered after a negative opening. The negative opening for Nikkei came after the somewhat sour US sentiment on Friday.

The US equity market once again took its lead from policy makers. The fear of Fed tapering at the September meeting dented sentiment and the major indices all ended the day lower. US equities experienced the first weekly loss in six weeks. During last week Regional Fed presidents Evans, Pinalto and Fischer all said that the Fed may be closer to tapering as the labour market improves. We stick to our view that tapering will start in September. It might weigh on risk assets but, on the other hand, it reflects that the US economy and especially the labour market are doing quite well.

One of the major issues over the summer has been the fear of a more severe slump in the Chinese economy. However, better-than-expected Chinese numbers out Thursday and Friday last week have convinced investors in the Chinese equity market this fear might be overdone. This morning the Shanghai composite index gained further and reached the highest level in almost two months. Real estate developers performed especially well.

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