Disappointing China trade data to weigh on Asia sentiment | CMC Markets Daily Commentary
China’s trade balance in August missed market expectation as the prolonged trade dispute with the US suppressed demand from the ‘world factory’ and a forecasted ‘front load’ activity failed to materialise. China’s exports fell 1 percent from a year ago, compared to a Reuter forecast of a 2 percent increase. Imports also slumped by 5.6% on a year on year basis, suggesting a persisting weak demand that may translate into poorer export data in many smaller economies which are highly depend on China’s demand.
The People’s Bank of China (PBoC) reduced the Reserve Requirement Ratio (RRR) for the majority of banks by 0.5 percent on Friday, a measure that is projected to inject 900 billion yuan to the economy in order to cushion the slowdown and alleviate pressure over banks. Markets seemed to have priced-in this action last week when policymakers hinted that monetary tools will be used to contain risk and stimulate growth.
Missing trade data and the central bank’s RRR cut may put pressure over Chinese yuan this week as easing monetary policy and weaker fundamental prospects both point to a softening currency.
The Hang Seng Index is testing a key resistance level at around 26,700 points (61.8% Fibonacci Extension). Breaking out above this level will open room for more upside towards the 27,130 and then 27,570 points. Violence in Hong Kong continued to dampen the city’s economic outlook and global reputation, suppressing the performance of companies with large direct exposure to Hong Kong. Retail sales, hospitality, tourism and service are among the sectors hurt the most by recent protests.
As risk sentiment swung positive over the past few trading days, gold price has fallen sharply to just above US$ 1,500, which now serves as a key support level. Breaking down below this level will likely lead to further downside towards US$ 1,450.
Hong Kong 50 – Cash
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