Overview: With US Q2 2014 GDP displaying a strong rebound there was confirmation that the Q1 weather-related fall was just an aberration.…
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ETF Securities Research
Chinese PMIs show that manufacturing activity is expanding and continues to outpace consensus expectations. While US jobs growth came in below expectations, most data point to the global economy expanding at a healthy pace, which will bode well for cyclical assets. However, geopolitical risks are increasing with the conflicts in Ukraine and the Middle East remaining unresolved. Adding to investor worries is the second Argentine sovereign default in 13 years, leading some to continue to actively seek hedges with defensive assets like gold.
Commodities: Arabica coffee prices rose 9.4% in a week. Reports of colder and rainier weather in Brazil, which produces 45% of the world’s Arabica coffee crop led to strong price gains. Excess rain has the potential to stall the harvest which is underway and the cold could lead to frost damage. However the forecast is for drier and warmer weather now, which could prompt a price reversal in the coming week. Mild mid-summer weather in the US allowed hogs to stay heavier than a year ago, adding more pork tonnage to the retail sector, which pushed the front month lean hogs future price down 4.4% last week. Tin rose 3.2% after a long-awaited change in Indonesian export regulation will come into force in November. Although a ban on ingot exports has been in force since last September last year, the authorities have now set the purity levels for ingots and solder and have set standards for packaging and labelling which could tighten global supplies further.
Equities: China A continues to benefit from the improving Chinese economy. Last week the MSCI China A Index rose 5.1%, for the third consecutive week as HSBC China manufacturing PMI climbed to an 18-month high in July. With H1 policy stimulus starting to take hold and further stimulus planned in coming months, we anticipate local and foreign investor sentiment will continue to improve and push local equities higher. Volatility is also looking increasingly attractive given lingering global woes and stock markets’ historically high levels, prompting an 8% rise in the EURO STOXX 50® Investable Volatility Index last week. Meanwhile, Germany’s benchmark stock index, the DAX, tumbled by almost 4% last week, on fears tougher sanctions on Russia will have a substantial impact on the German economy.
Currencies: Further USD gains ahead. The improving US recovery path is likely to be reinforced by this week’s manufacturing data, following another 200k+ jobs gain. The employment outlook will be a key focus for commodity currencies this week, with both Australia and Canada reporting jobs. Employment in both countries appears to be gradually gaining traction and should be reinforced by the Reserve Bank of Australia at its meeting this week. While not expected to adjust policy settings, the central bank has been talking the currency down and is again expected to be a downward influence for the Australian dollar. Further weakness is also expected for the Euro after price data showed that the threat of deflation is increasing for the Eurozone. Despite medium term expectations for inflation rising, prices were just 0.4% higher (versus the’ target of near 2%), surprising to the downside ahead of this week’s ECB meeting and keeping policy firmly in easing mode for the foreseeable future.
Source: ETFWorld.it
