Early Asian trading saw Asian stocks increase as investors reacted to the heightened speculation that China ill take steps to stimulate its economy after Beijing posted its slowest quarterly growth figures for 3 years.
Japanese markets are closed for a national holiday but Hong Kong’s Hang Seng Index was up 0.08%, whilst Australia’s S&P/ASX200 had increased by 0.70% as Chinese Premier Wen Jibao said on a tour of Southwest Sichuan that China’s economic growth hasn’t gained momentum and the government will step up policy fine-tuning. He also stated that while government measures to stabilize growth are “bearing fruit,” difficulties may persist. This has increased speculation that its central bank may reduce its interest rates by as much as 1% to instigate lending and spur growth.
China’s gross domestic product increased 7.6% in Q2, and while largely in line with expectations, the figure still fell well below the more robust 8.1% rate posted in Q1 of this year. The talk of monetary policies being introduced sent stocks climbing, as monetary stimulus measures ranging from interest rate cuts to liquidity injections to adjustments to reserve requirements are more often than not bullish for stocks.
The USD, which was weakened by disappointing U.S. consumer sentiment data and poor jobs reports in recent sessions gained on Monday as bottom fishers snapped up nicely priced positions. Federal Reserve Chairman Ben Bernanke presents his semi-annual report on the U.S. economic outlook to Congress this week, whilst ongoing talk that the Federal Reserve will stimulate the economy via easing measures tempered the USD’s gains but the greenback received a boost with concerns the Chinese economy is cooling as well as German Chancellor Angela Merkel saying she wouldn’t rush a court to decide if participating in European bailout measures agreed in the last summit violates the country’s law. In subdued trading, with lower than average volumes, the USD made small gains against most major currencies with the EUR/USD down 0.08%, trading at 1.2239. The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.03% at 83.46.
Despite the UAE opening a new crude oil pipeline route which bypasses the Iran controlled Strait of Hormuz, the price of Crude Oil fell 0.30% at time of writing primarily on slowing Chinese growth concerns. Currently, nearly one fifth of the world’s traded oil travels via the Strait of Hormuz which Iran has repeatedly threatened to close in retaliation for sanctions over its controversial nuclear programme with officials repeating the threat again over the weekend. However, Oil often rises when the Fed weakens the greenback to jolt the economy as Oil trades on dollar denominated exchanges, making it attractively priced in the eyes of investors.