Caution Lingers On China Fears, Earnings Take Centre Stage

Asian shares flashed red on Tuesday as concerns over China’s sluggish economic recovery weighed on sentiment.

The disappointing GDP data published in the previous session along with the hefty losses posted by China’s Evergrande over two years sapped investor confidence in the world’s second-largest economy. Interestingly, European futures are pointing to a flat open, shrugging off the caution from Asia with investors focusing on key economic data and corporate earnings. On Wall Street, the S&P 500 closed at 15-month highs yesterday and could be injected with more volatility as earnings season switches into higher gear. The likes of Bank of America, Morgan Stanley, Goldman Sachs, Netflix, and Tesla among others will announce their quarterly results this week.

In the currency arena, the dollar slightly weakened against other G10 currencies ahead of the U.S. retail sales and industrial production data released later today. Looking at commodities, oil bulls were able to draw strength from Russia’s plans to cut crude exports while gold prices nudged higher, supported by China growth fears and expectations around the Fed ending its rate hike cycle.

Dollar shaky ahead of key US data 

The pending U.S. retail sales and industrial production figures could influence monetary policy expectations before the Fed meeting next week. After the June US CPI report cooled more than expected, investors are searching for more signs of inflation slowing in the world’s largest economy. Markets are forecasting retail sales to rise 0.5% in June, marking an increase from 0.3% in the prior month. The industrial production figures are expected to hold steady in June after falling 0.2% in May. Should the incoming US data bring a positive surprise, this could refuel speculation around the Fed keeping interest rates higher for longer.

Commodity Spotlight – Gold 

Gold flirted around the $1960 level this morning as market players evaluated China’s sluggish growth and speculation around the Fed ending its rate hike campaign.

The precious metal is likely to remain supported by a weaker dollar and subdued Treasury yields ahead of another busy week for financial markets. Fresh volatility could be on the cards for gold over the next few days as investors focus not only on US economic data but corporate earnings which could influence overall sentiment. Should gold experience a clean breakout and solid close above $1960, this may encourage a move towards $1985 and $2000 respectively. But if $1960 proves to be a tough resistance, prices may slip back towards $1940 and $1932.