Daily Market Update 22 July 2013 - Sino-Japanese news flow to set direction

Daily Market Update 22 July 2013 - Sino-Japanese news flow to set direction

Taking a further step towards fully liberalising their financial markets, China’s PBoC eliminated their decades-old 30% floor on lending rates on Friday, a positive step that should see commercial borrowing rates decline on the back of increased, less-regulated market forces. While the PBoC also removed the upper ceiling on interest rates charged by rural co-ops, they ruled out removing the upper ceiling on deposit rates, something that would undoubtedly assist consumption if and when it occurs, while variable interest rates charged for residential property purchases were also left on hold. 


Japanese Upper House elections have delivered Shinzo Abe’s LDP a crushing victory over the weekend with the party, along with their coalition partner New Komeito, expected to win more than 70 of the 121 seats contested in the 242-seat upper house. While such an outcome was largely expected by the markets, all attention will now turn to whether the overwhelming majority will deter Abe from  making much-needed structural reforms to the Japanese economy, the so-called ‘third arrow’ of ‘Abenomics’.


Canadian CPI came in flat for the month of June, a result that missed expectations for an increase of 0.1%, with the year-on-year rate ticking up to 1.3% from 1.1% in May. Excluding volatile items that tend to skew the data, ‘core’ CPI experienced deflation, falling 0.2%, with the annualised rate moving up to 1.2% from 0.7% in May.


German producer prices held steady last month, a result that was in line with market expectations, with the year-on-year rate quickening from 0.2% to 0.6%.


Italian industrial orders surged in May with an increase of 3.2% reported. The result four-times higher than the upwardly-revised 0.8% increase of April and saw the year-on-year decline slow to -1.1%. While forward-looking orders were robust, total sales remained subdued with a 0.1% lift reported. Despite the weak rise, with older, softer data rolling off, the annualised decline improved to -5.1%.


UK public sector borrowing fell modestly in June with a decline to £10.234b reported. While below the upwardly-revised £12.7b figure of May, the result was higher than the £9.45b level that had been expected by the markets.


G20 finance, Labour and employment ministers met over the weekend in Moscow. To read their latest communiqué please follow this link.


The Day Ahead (All times AEST)

The ASX 200 looks set to go about erasing Friday’s losses this morning with SPI futures pointing to a gain of 21pts on the open. While we will start off firmer, given the news out of China over the weekend, one suspects the index will take its cues from the movements of Chinese equity markets later in the session.


Having spiked to a high of .9234 following the Chinese news only to slide into the NY close, the AUDUSD has continued to give back ground this morning with the pair currently fetching .9175. As opposed to equity markets who will no doubt have one eye on the Shanghai Composite, we expect the increasingly-prevalent, highly inverse correlation between the USDJPY and AUDUSD will be influential today as markets attempt to digest the landslide LDP election win seen over the weekend. Support starts below .9140 and again at .9000 with resistance kicking in above .9190 and at .9234.


Very little on the economic calendar today with US existing home sales and Taiwan export orders the only releases of note.


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