Market Commentary: Lower data from China could trigger further easing

Markets are trading lower this morning after China issued industrial production and retail sales data for the month of August, which were lower than expectations and lower than the July data. This negative data could be seen as an opportunity because it increases the probability of further easing in China.

The negative data which has been coming out of China has led analysts to downgrade growth forecasts for the country. RBS reduced its growth forecasts for China for 2014 from 7.6% to7.2%.

This week is a very important week for the markets for two reasons. The first is the FOMC meeting next Wednesday and second is the Referendum on Independence in Scotland. Regarding the FOMC meeting, we do not expect a rate hike at this point in time. BNP Paribas are of the opinion that the FOMC could raise interest rates as early as 2Q 2015 although their “baseline forecast” remains 3Q 2015.

Scotland is another country which is causing volatility in the markets. Prime Minister David Cameron will return to Scotland for the second time in a week to fight for the future of the UK as campaigning ahead of the referendum on independence reaches its climax.

Activists were out in force across Scotland during the final weekend before the Sept. 18 ballot that might trigger the breakup of the union after more than three centuries. With opinion polls showing contradictory findings, both the “yes” and “no” campaigns said they were poised to win, introducing further uncertainty to financial markets fixed on Scotland.

Draghi met with Finance Ministers on Friday to discuss the way forward for Europe. The main reason for the meeting was to inform the finance ministers that unless they carry out structural reforms within their own country, the policies adopted by the ECB will not has the desired effect on the Eurozone.

With the policies the ECB has in place, it could increase the size of its balance sheet to the level it was in the financial crisis. But this will only happen if the individual countries particularly Italy and Spain do their part in all of this and carry out the reforms necessary.

No improvements to report in the Russia-Ukraine conflict. Ukraine’s leader must tread carefully over plans for permanent peace as he gears up for parliamentary elections. President Petro Poroshenko has signed a cease-fire in Ukraine’s east, providing breathing space to mold a resolution to five months of fighting. Having stepped back from a pledge to defeat the pro-Russian insurgency by the Oct. 26 ballot, he now needs a diplomatic win he can sell to voters.

Brent (which is a major cost for many companies )fell to $96.27 a barrel after settling at its lowest level since June 2012 amid concern global fuel consumption is slowing while output climbs. The International Energy Agency cut its global oil-demand forecast for 2015 last week.

In corporate news, Alibaba is planning to increase the size of its initial public offering amid strong investor demand. The Chinese e-commerce company plans to increase the top end of a marketed price range for the sale to above $70, one of the people said, asking not to be identified discussing private information. Alibaba was previously marketing the shares at $60 to $66, according to U.S. regulatory filings.

Apple's online store crashed under the weight of demand from eager early adopters hoping to pre-order one of the new iPhone 6 models launched last week. Those looking to shop around for the best deal on the iPhone 6, coming September 19, will need to do a bit of legwork.

SABMiller Plc was rejected in an attempt to buy smaller brewer Heineken, a deal that would have strengthened it against a potential bid by Anheuser-Busch InBev NV. Heineken, the brewer of Amstel Light, confirmed in a statement that it turned down the offer and said it intends to remain independent.

This article was issued by Calamatta Cuschieri, visit www.cc.com.mt for more information.

The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.

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