European Market Ignores Asian Data and Bets on Carney

European Market Ignores Asian Data and Bets on Carney

Chinese economic data was dominating the headlines before the Brexit news, but since then it has taken a back seat. However, it does not mean that investors are no longer paying attention to this data. With Brexit keeping everyone so busy, they had little or no time to think about anything else.

The Chinese manufacturing PMI numbers released last night were so vile that they made a commotion which investors could not stop themselves from ignoring. The number dipped to 50.0 from its previous reading of 50.1and sits literally at the border line which distinguishes between contraction and extraction. The number is also the lowest one in nearly four months. The Chinese Caxin manufacturing index dropped further into contraction territory and printed a number of 48.6.

This turbulence in the Chinese economic data may have been amplified by the Brexit situation as global growth may be impacted. Unfortunately, there are still no signals for any further stimulus coming from the People’s Bank of China, and any signs of a strong recovery may only remain wishful thinking.

As for Japan, the CPI data released on Friday confirmed that the deflationary environment has become even worse, and the BOJ will now be forced to introduce more liquidity in the market. The strength of the Japanese Yen and the loss of consumer confidence, as shown in the retail sales data, have been massively impacted by this.

Back in Europe, a political shockwave rattled investors yesterday when Boris announced that he has no interest in running for the Prime Minister's position. This helped the British pound, but it was short lived.

This is because Mark Carney, the governor of the Bank of England, tried to reassure the markets that the bank is ready to face any consequences and it will not hesitate to take all actions which are at their disposal. During the financial crisis, the Fed left it to ensure their support for the markets. However, Mr Carney does not want to make that mistake and he is grabbing the bull by the horns and reiterating the support of the central bank.

We have been vocal that the BOE will have to look at easing measures in the coming months as the actual effects of Brexit may take some time to show its effect. Although, if the economic data does continue to show its resilience against the headwinds, and investors continue to buy into the equity market with full confidence, then it may change the situation and the bank could consider not using its easing measures.

His comments were enough to spur another leg of sell-offs for sterling. We reiterate the same message again that the volatility will maintain a permanent residence for some time and the bias may be towards the downside for sterling. As for the equity market, it is Christmas again and it may continue to rally as investors are assured that cheap findings are there to stay.

Having said that, the banking sector is still not the most favourable area for us under the current circumstances. Negative rates, how article 50 will affect the movement of people, and how any future trade deals will be hammered out will only make things worse for the sector.

ENDS

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