Stocks Rebound as Risk Aversion Abates

Stock prices continued to recover as risk aversion abated on Monday. The moved to safe haven assets which started to recede in post-U.S. data trade, continued to retreat in Asia and modest gains in the Dow Jones last Friday were followed by a broad bounce back in stock markets in Asia ex-Japan and Europe. The Hang Seng managed to recoup 1.36% today, the ASX 200 0.65%, while Japanese markets closed lower in catch up trade, after Friday’s local holiday, with the selloff tempered by stronger than anticipated GDP numbers. The global recovery continued during the European AM session and the DAX, which on Friday briefly fell below the 12000 mark, is up more than 1%, and at 12140 around the levels seen early Thursday. Good earnings reports from RWE underpinned the recovery with financials also in demand. Other Eurozone markets also bounced back and the Euro Stoxx 50 was up, as the EUR fell back from recent highs against the USD. While Japanese growth was stronger than expected, Chinese retail sales and industrial production disappointed.

Japan’s Q2 GDP Rose More than Expected

Japan’s Q2 GDP surged 4.0% in Q2 quarter over quarter following a revised 1.5% which was +1.0% growth pace in Q1. The increase in Q2 was much stronger than the 2.5% expected by analysts. Strong consumption growth led Q2 GDP growth, as private consumption improved 0.9%. Business investment grew 2.4% in Q2. Hence, domestic demand was quite firm in Q2, which was a surprise. Net exports were a modest drag on growth.

Chinese reported softer than expected Industrial Production and Retail Sales on Monday, showing that the world’s second largest economy might have contracted in the Q3. Industrial production grew at a 6.4% year over year pace in July, down from 7.6% in June and below expectations that IP would increase by 7.1%. Retail sales increased at a 10.4% year over year, again falling shy of growth in June which was 11%, and lower than forecasts that retail sales would increase by 10.8%. Fixed asset investment, or spending on infrastructure and property, rose at an 8.3% year over year in the first seven months of the year, down from a forecast 8.6% rise.

Eurozone industrial production dropped -0.6% month over month in June, in line with expectations. The annual rate decelerated to 2.6% year over year from 3.9% year over year, but the correction in June still left production up 1.2% quarter over quarter in Q2, after just 0.1% quarter over quarter in the previous quarter. No sign then that quarterly GDP growth will be revised down from the 0.6% quarter over quarter reported with the preliminary number. So markets should see through the monthly correction, especially as PMI readings continue to suggest ongoing robust growth going ahead.

Oil prices are under some pressure on Monday following Friday’s reported by Baker-Hughes which showed that weekly oil rig count increased by 3-rigs to 768, up 372 from a year ago. WTI crude is trading just below the 49 handle, capped by resistance near the 10-day moving average.