UK retail sales beats estimation, GBP rebounds

Sterling rebounded 1% following strong retail sales numbers last night. The retail sales in July rose 1.4% m-o-m, which is way ahead of forecast of a 0.2% growth. It also marks a sharp revision up from -0.9% in the previous month. The 12% plunge in GBP following the EU referendum helps to boost tourist spending, which then becomes a key driver of retail sales volume.  

GBP/USD closed at a two-week high of 1.3168 last night and traded a bit lower in Asia opening this morning. 

Equity extends rally as oil returns to bull market
European and US market closed higher last night, with higher oil prices boosting the sentiment and energy sectors leading the rally. The Federal Reserve’s July meeting has revealed very little with regards to the timing of the next interest hike. 

The lack of signals presented a weaker Dollar index, and it is heading towards the low levels observed since Brexit. This weaker dollar fuels the rally of crude oil, which re-entered into a technical bull after rising over 20% from the recent low. The key resistance level for WTI September future is around US$48.52 while key support level is at US$45.88. 

Markets muted on the Hong Kong – Shen Zhen  stock connection
China A-shares market has muted following the official announcement of Hong Kong-Shenzhen exchange link. The exchange link broadens the array of shares available to foreign investors by adding 880 new shares into the program. 

Yet, markets remained calm. The event was fairly priced-in through the market movement earlier this week in light of the country’s latest step towards the liberalisation of its US$6.5 trillion domestic shares market to foreign investors. 

The link might be opening soon, but given the sluggish performance of the economy and fresh memories of the stock market crash last year, foreign investors will need firmer signals of bottom-out coupled with  significant improvements in market sentiment before rushing to buy the A-shares. 

There is rising speculation on a higher chance of MSCI inclusion as a result of this stock connection. The China Securities Regulatory Commission also lifted restrictions on asset flows, removing the aggregate quota for both the Shenzhen and Shanghai link. This in turn addresses the limitations in trading mainland shares flagged by MSCI in June this year. 

Crude Oil West Texas Sep 2016

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