Chinese move gives market plenty to mull over

Monday 22 July 2013

Chinese move gives market plenty to mull over

By Tim Waterer (Senior Trader, CMC Markets)

There is plenty of news for the markets to mull over heading into the new week. The Japanese election result is keeping Abenomics on course, while Chinese interest rate reforms offer at the very least a symbolic benefit even if they do not deliver any great material impact at this stage. While there is some concern over how the removal of the lending rate floor will impact bank performance in the near term, the stance adopted by the PBoC should be to the overall liking of financial markets with a view to there being further liberalisation to come.

The Shanghai market did not seem overly ecstatic with the PBoC interest rate reforms with Chinese equities spending time in negative territory to start the week. In Japan, the Nikkei had a lacklustre showing given that the election result had been largely priced in. Australian equities seemed more buoyant than most across the region today with broad based gains putting the ASX200 back in touch with the 5000 level. Losses on other indices across the region caused our market to relinquish some of the morning gains, though solid showings particularly from the key banking and resource stocks still ensured it was a sprightly start to the week for the local bourse.

A surge by the gold price today provided an assist to the Aussie Dollar with the currency moving back above the US$0.92 level. Some key stop levels were triggered on the upside in the gold price today which exaggerated the jump higher by the precious metal. The AUDUSD rate tracked the gold price higher, while the news from China concerning lending rates also provided some additional appeal to the Aussie Dollar.

While the AUD has found some support today, traders will be mindful of the upcoming inflation data on Wednesday, as the result here will likely have interest rate implications. With Chinese HSBC Flash Manufacturing PMI due for release on the same day as the CPI numbers for Australia, it would not be surprising to see the AUD trade in cautious fashion in the lead up to these events.
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