Dollar sinks, futures diverge ahead of China data

By Michael McCarthy (chief market strategist, CMC Markets and Stockbroking)

A softening US dollar helped US indices to new records on Friday night. However Asia Pacific futures markets failed to respond to the positive leads, and are flagging a negative start to regional trading. Important China data due around mid-session may see cautious trading this morning.

An impending interest rate cut and speculation that the US treasury may intervene in currency markets are the twin drivers of the dollar weakness. The falls on Friday are all the more remarkable given producer prices were firmer than forecast and core CPI is above the Fed’s 2% target. Relative strength in Asia Pacific currencies could see international profit taking in stocks.

China second quarter GDP is forecast at 1.5%, giving an annual growth rate of 6.2%. This is lower than the previous quarterly growth rate of 6.4%, and reflects softer data in the lead up. Industrial production (forecast 5.1%, previous 5.0%) and retail sales (f/c 8.5%, prev 8.6%) could be more influential.

Commodity markets continue to send mixed signals. Crude oil and iron ore prices are higher, suggesting robust industrial demand. On the other hand elevated gold prices are pointing to growth concerns. The relatively low level of volatility across asset classes is surprising in light of rising uncertainty.

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