• Chinese CPI comes in as expected, PPI slightly beats expectations, stocks nudge higher
  • Chinese authorities are to be at disposal of more tools to ease financial conditions if needed
  • USDJPY breaks through 111 on a slight USD bid along with risk-on

Monday brought quite decent gains across European as well as US stocks which helped Asian shares recover alike. Among reasons standing behind better performance of riskier assets yesterday one may single out less talks, reports with regard to trade wars and the June’s employment report from the US economy released last Friday (it did not tighten the screws on the Federal Reserve to lift rate quicker). In turn, overnight we were offered the newest inflationary data from the Chinese economy for June, which might be considered by some as outstandingly important given the ongoing trade war which one day might result in an increase of inflation across the country. However, it was not the case this time around yet as CPI came in at 1.9% exactly matching economists’ expectations. On the other side, PPI beat the median estimate at 4.5% producing 4.7% in annual terms. Nevertheless, a rise in producers’ prices was largely driven by higher oil prices, and such a scheme does not seem to be supportive of Chinese companies in the world of tight competition where some firms might find it hard to pass rising costs on their clients. This is why rising PPI and stalling CPI acts to the detriment of the whole economy.

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The Hang Seng (CHNComp) has reached its 23.6% retracement which might constitute the first more notable hurdle for bulls. Should they fail to break it, a possible resumed reversal is probable, and then a decrease toward 10000 or even below remains on the cards. Source: xStation5

Either way, do you remember when everybody was concerned that the China’s economy would export deflation abroad? Some time has elapsed, and right now everybody might become more fretted about exporting inflation contributing to a quicker pace of monetary tightening all around the world and thereby acting not in favour of stocks. However, so far so good, Chinese stocks are gaining the second day in a row adding 0.8% as of 6:38 am BST (Hang Seng – CHNComp). Albeit, from a technical standpoint one may notice that the price has already achieved its first notable resistance, and given that trade tensions are unlikely to be removed any time soon it is highly probable that the Chinese index could erase all its recent gains. Finally, let us mention overnight revelations from the Chinese press saying that PBoC is to be at disposal of many other instruments to deal with tightened financial conditions, and the central bank is to hold a lot of room for further liquidity injections. According to the press the PBoC is confident of the yuan stability. Let’s notice that the USDCNY has moved back to some extent after reaching its highest point since August 2017 during the past week.

Meanwhile, the US dollar is trying to licking its wounds after a bleak beginning of the new week. The greenback is the strongest major currency as of 6:48 am BST, rises have not been impressive so far though. Anyway, improved risk appetite along with the stronger US currency itself is a remedy for the USDJPY to keep on moving higher. The pair has increased clearly above a 111 handle catching its higher levels since May. Once buyers move through this level successfully, it could encourage them to continue pushing higher, and if so 112 could become another aim for them.

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The USDJPY has breached 111, and if it holds these gains till the end of the day it might bode for bull thereafter. Source: xStation5