A gradually increasing Chinese slowdown took prominence on August 10, giving an impetus to a few stock markets on the hope of an increasing policy stimulus as it knocked down the commodity prices. Chinese stock markets went against the wide cautiousness seen in Asian equities as major indices rose in the range of two to four percent. In case of Europe, trading started low key as energy and mining stocks pulled down FTSEurufirst 300 equity index by 0.2 percent.
Weak Chinese data
Policy makers in China face increasing pressure in supporting economic growth post a huge export drop in July. There was also a substantial drop in the producer prices- the maximum in six years. The producer price index of China dropped 5.4 percent year-on-year during July, as per the data released by National Bureau of Statistics. The decline followed data showing exports shrinking 8.3 percent from 2014. This can be compared with a 1.5 percent estimated decline.
The data reveals a weak demand when it comes to Chinese factory products. This is true for home consumptions and also exports. It is suggested that efforts at stabilizing the finances of the local government and cuts in interest rates did not initiate a recovery. The interest rates have been lowered four times by People’s Bank of China from November. This was done to support an economy estimated to grow at slowest pace from 1990.
According to Zhou Hao of Singapore’s Commerzbank AG, the aim in 2015 is to continue growth, so policies will be formulated to stimulate demand. Analysts of Australia & New Zealand Banking Group wrote that maintaining the economic engine at approximately seven percent is a challenge as no surge is expected in the financial sector during the second half. They believe that the monetary policy will be more supportive. Another reduction in the interest rates is expected during the second quarter. There will also be a 50 basis points slash to the part of deposits which lenders should hold in reserve.
The Chinese outlook was in sharp contrast with good data from the US. The American data appears to be on track for a rise in the interest rates in September. The US dollar hovered in its four month high peaks compared against a currency basket on August 10. The US Treasury and 10 Year German yields were higher by one basis points. Equities in emerging markets were up by about 0.1 percent.