China stocks hit new lows
Well, the Chinese saga seems like it is still a long way from concluding. We saw that again new lows were tested by Asian shares because of the concerns that demand from China will slow down the economy for all the nations that are tied to its consumption. Still we are seeing Dollar buoyancy and this was further propped by their housing data release yesterday. The sentiment in Europe when viewed yesterday seemed to be more positive. Germany, France and Britain’s stock indices were all up nearly a third of a percent.
The GBPUSD during the day yesterday trended slowly downwards with the Dollar gaining strength over the period. No doubt these gains from the States will have come from the housing data mentioned but also as Chinese fears continue, flocking to the Dollar to shelter from the storm is likely.
Also, let us consider a ‘pre-carry trade’ play too. If you are viewing a currency whose interest rate could likely rise in the near future it makes sense to already consider putting your money in it for many reasons. The key among them is this – a currency that experiences interest rate increases produces higher investment yields. As these become more attractive, more purchasing of the currency takes place in order to capitalise and the currency value rises. Simultaneously, when the interest rate rises we see something called a carry trade. Typically, this means you receive interest gains when you sell a currency with a low interest rate and buy one with a high interest rate. This would only seem like a minor impact for the Dollar, given it’s likely only to be a rise of 0.25%, but over large sums, this counts.
Today, we brace for the weight of UK data expected this morning. We expect: UK Consumer Price Index, Producer Price Index and Retail Price Index – so all measures of our inflation figure. There is a UK House Price Index as well. Next we have some more housing data from the States and a few Treasury bill auctions. Really, we are looking to see if there is any indication now or on the horizon of potential relief from global deflationary inputs (given the low price of oil etc) and to see if our demand locally has put pressure on prices to move upwards. This would really encourage our own interest rate talk.