Market Close Aug 27

Australian and Chinese markets boosted by data

China outperforms after industrial profits rise; Australian data shows Q2 investment fell less than expected lifting miners; US dollar struggles ahead of Jackson Hole symposium

Australian and Chinese markets boosted by data
China's industrial profits grew at the quickest pace since mid-2018. File photo: Reuters.

(ATF) Hong Kong: Asian market sentiment is upbeat after the overnight rally on Wall Street but gains are capped as investors monitor the Jackson Hole Economic Symposium. This is a forum for central bankers, policymakers, academics and economists from around the world that is being held online this year due to the pandemic.

The symposium has been used in the past by Fed chiefs to signal policy shifts, and markets will await similar comments from US Federal Reserve Chair Jerome Powell when he makes his address at 1310 GMT.

“The three main speeches by Fed Chairman Jerome Powell, Bank of England Governor Andrew Bailey and European Central Bank Philip Lane will affirm that interest rates will stay low for longer,” DBS analysts said in a note.

Powell is to speak on “Why Has The Trend Rate Of Growth Declined?”, Bailey on “Micro Uncertainty and Policy Uncertainty” and Lane will share views on “Crisis Management in the Covid-19 Economic Shutdown “ in a panel discussion.

The note said Powell’s preview on “average inflation targeting” was not new as the Fed did not hike rates for seven years after the Global Financial Crisis, even whilst the core PCE deflator rose above the 2% inflation target because of high joblessness.

Hong Kong’s Hang Seng index retreated 0.83%, the Nikkei eased 0.35% but the mainland China CSI300 benchmark added 0.54%, recovering from the morning’s lows, after National Bureau of Statistics data showed China's industrial profits grew at the quickest pace since mid-2018.

Treasuries in demand

US Treasuries are in demand given the risk-off mood with the 10-year yield declining a basis point to 0.68%. The US dollar recovered from the lows struck earlier in the day with the unit trading at 93.06 versus a basket of currencies. It is still not far from the lows struck in April 2018 as financial markets expect the Fed to remain dovish.

Australia’s S&P/ASX 200 retreated from its earlier highs but still ended in positive territory as miners rose after Australian economic data showed machinery and equipment investment, as well as construction investment, fell less than anticipated in Q2.

“Meanwhile, firms are becoming more pessimistic about the outlook for capital spending,” Marcel Thieliant, senior Australia & New Zealand economist at Capital Economics, said in a note after the data release, while pointing out that mining firms’ capital spending projections point to a 6.2% fall in investment in the current financial year, less than the double-digit declines projected in 2015/16 and 2016/17.

“The upshot is that the outlook for capital spending isn’t as gloomy as one would expect in the current environment.”

Credit markets also surrendered gains ending flat following the morning highs. Emperor International’s 3-year bond, ABC Intl 5-year dollar bond, and Zhongan Online Insurance are being monitored by investors.

ATF China Bond 50 Index: Financials lead losses among China bonds 

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Foreign Exchange: The inexorable rise of the Chinese yuan

Asia Stocks

· Japan’s Nikkei 225 index eased 0.35%

· Australia’s S&P ASX 200 inched up 0.16% 

· Hong Kong’s Hang Seng index retreated 0.83%

· China’s CSI300 advanced 0.54%

· The MSCI Asia Pacific index slipped 0.24%.

Stock of the day

Chinese smartphone maker Xiaomi Corporation rose as much as 13.5% after it announced quarterly results that showed profits had more than doubled in the June quarter with an upbeat assessment of the road ahead. “With Huawei potentially being forced out of the smartphone market via US rules on semiconductor access, we forecast Xiaomi's global smartphone share to increase to around 14%,” Morningstar analysts said in a note. Xiaomi’s market share is currently in the 9-11% range, it said.