Sleepy Overnight Session Interrupted By Chinese Market Turmoil

Within the ECB the battle is perhaps between Draghi and the rest of the committee as the President was certainly more hawkish in Sintra on June 27th than he was when he spoke for the committee at the last meeting on June 8th. For this week's meeting DB highlights that the main point of interest is seeing how much authority Draghi has over the Governing Council. This will be judged by the strength of the signal at the press conference. According to our economists, the more that Draghi’s new “confidence, persistence, prudence” mantra makes it into the press statement, the more confident the market will be about the Council converging to Draghi’s more constructive view. DB expect Draghi to open the door to a September decision on QE without any pre-commitment.

So all to look forward to. In the meantime the week has already started with a bit of a bang following the latest data dump out of China as well as a number of China-related headlines over the weekend. Starting with the data, the latest June numbers were overall positive. Q2 GDP printed at 6.9% yoy unchanged versus Q1 but ahead of market expectations for 6.8% yoy. In addition, retail sales (+11.0% yoy vs. +10.6% expected; +10.7% previously) and industrial production (+7.6% yoy vs. +6.5% expected; +6.5% previously) both rose more than expected. Fixed asset investment held steady at +8.6% yoy, albeit one-tenth above consensus.

Chinese equity markets had initially sold off at the open ahead of the data. The Shanghai Comp, CSI 300 and Shenzhen were down was much as -2.60%, -2.30% and -4.50% respectively at one stage. That seemed to reflect weekend news about the investigation into a former Communist Party chief for violating party regulations, as well as the PBoC conference over the weekend where more prudent financial regulation was stressed (see more below). However, bourses have recovered somewhat following the data with the CSI 300 now flat, Shanghai Comp now -0.48% and Shenzhen -2.38%. The rest of Asia is largely firmer. The Nikkei (+0.09%), Hang Seng (+0.52%), Kospi (+0.36%) and ASX (+0.14%) are all up.

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