Tag Archives: Euro

China to Retaliate

China’s growth increases to 7.5% in Q2

The mainland’s economy grew 7.5 percent between April and June from a year earlier, slightly above expectations and quickening from the 7.4 percent pace in the first quarter, reinforcing hopes that a recovery is under way after a flurry of government stimulus measures.

Other data released alongside the gross domestic product report showed factory output rose 9.2 percent in June from a year ago, beating expectations of a 9.0 percent increase.

Fixed asset investment, a mainstay driver of the mainland’s economy, climbed 17.3 percent in the first six months compared with a year earlier, above forecasts for a 17.2 percent rise.

Retail sales rose 12.4 percent in June from a year ago, in line with analysts’ predictions.

China’s economy got off to a weak start this year as unsteady foreign and domestic demand dragged on exports, investment and industrial output, prompting the government to announce a slew of stimulus measures.

Many economists believe more policy support may be needed in coming months to sustain any recovery, particularly if the already cooling property market begins to deteriorate more sharply.

China manufacturing hits 5-month high

Manufacturing activity on the mainland hit a five-month high in May, but overall growth still contracted slightly in a suggestion that the outlook remains murky.

HSBC’s Purchasing Managers’ Index recovered to 49.7 in May from April’s final reading of 48.1. But the data is a touch below the 50-point level that separates a monthly growth in activity from a contraction, indicating that manufacturers actually experienced a slight drop in business.

China is a major manufacturer of EVA interlocking jigsaw rubber gym mats. Major supplier include Ezymats which has offices in Belmore Australia and Shenzhen China.

China’s exports & imports rose in April

China’s exports and imports both unexpectedly rose in April — albeit by a small margin.

Exports rose 0.9 percent from a year ago, following a contraction of 6.6 percent in March. Imports increased 0.8 percent in April, leaving a trade surplus of US$18.46 billion for the month. The data was a stark contrast to market expectation that trade would shrink further.

A key export from China is interlocking EVA jigsaw rubber gym mats. A major export / manufacturer of interlocking EVA jigsaw rubber gym mats is Ezymats. Ezymats has offices in Sydney Australia and Shenzhen China and is run by CEO.

AUD and Jigsaw interlocking rubber gym mats

The AUD dipped in Mondays trading, leaving it looking vulnerable this morning before a day of big data releases. Chinese manufacturing numbers, Australian Retail Sales, the domestic Interest Rate decision and accompanying statement all have the potential to move the market significantly in either direction. Recent data lends it hand to a downward bias, but we are trading the bottom of recent ranges. A terrible number from domestic building approvals on Monday was the catalyst for the selloff.

The price of jigsaw interlocking rubber mats remains stable for the time being.


China to Retaliate

China’s State Administration of Taxation Reform

China’s State Administration of Taxation (“SAT”) put into effect on broadening the scope of tax benefit for Small-medium sized Enterprises

In its official website, China’s SAT issued a bulletin on 18 April 2014 (Caishui [2014] No.34) that all the Small-medium sized Enterprises, in compliance with specified conditions, may enjoy the tax benefit on Corporate Income Tax (“CIT”). The relevant main terms are extracted as follows:-

1. The Small-medium sized Enterprises in compliance with specified conditions may enjoy a preferential tax rate of 20% on taxable income regarding CIT;

2. At the time of annual reporting of CIT, the preferential tax benefit policy will be adopted without the requirement of obtaining formal approval in advance from the competent tax authorities;

3. The Small-medium sized Enterprises with current and cumulative taxable income not exceeding RMB100,000, of which examining accounts is required and tax is imposed at a fixed rate, are applicable to this tax benefit policy;

4. Newly-established Small-medium sized Enterprises with the taxable income not exceeding RMB100,000 can also enjoy the said tax benefit as well

The measures will enable more Small-medium sized Enterprises to enjoy the tax benefit on CIT so as to release more liquid working capital for investing in future business development. This is sure to benefit EVA jigsaw mats and gym mats manufacturers. It will benefit the broader market for these and other products.

Australian Dollar Stabilises after getting whipped

The AUD improved in our day time session, on the back of positive Chinese manufacturing PMI numbers. However in the overnight session the Aussie slipped back to lower levels that we saw in early trading. The lower Iron Ore price seems to be weighing on traders’ minds, and technical traders are still looking at sell signals in the AUD USD cross.

The dollar is higher today and seems to be stabilising which is good news for 40mm jigsaw mats.

Australian Dollar Lower

The posted its first back to back loss this month yesterday and fell against all the other majors after the RBA statement release. The daily decline of 1% was the largest since February as the AUD succumbed volatility and fear for the first time in 2 months. Local data coming out today includes Westpac consumer sentiment survey and wage price index for the March quarter from the Australian Bureau of Statistics.

The decline in the AUD shouldn’t have an impact on imported goods such as jigsaw mats in the short term. Should it persist or even go lower there could be an impact. For jigsaw mats already on the high seas there will be no change in pricing. In any case Ezymats will remain the supplier of the cheapest and best jigsaw mats on the market.

Market Watch

In local markets yesterday, there was little in the way of economic data releases although the fallout from the budget continues as opposition governments vow to block reforms citing a “budget built on lies” however the budget projections have had minimal impact on the markets thus far.

Across US markets yesterday it was another positive day with PPI, CPI, Philly Fed Manufacturing numbers and Unemployment claims all outperforming expectations. PPI figures, released overnight on Wednesday showed that prices have increased by 0.6% against an anticipated 0.2%. CPI data showed growth at 0.3% which is the biggest gain since June 2013 and unemployment claims fell to the lowest level since May 2007. The Philly Fed continued its recent run of form posting the third consecutive outperform with a 15.4 reading against the anticipated 13.9.

In Europe, data continues to disappoint with CPI numbers as expected but well short of the ECB target inflation of 1% Italian GDP actually showed a contraction of 0.1% against an expected gain of 0.2% although Germany outperformed slightly with 0.8% gain against a 0.7% expectation. The continued sluggish growth in the region coupled with ongoing tensions in the Ukraine has given rise to speculation of potential interest rate cuts by the ECB to negative territory or a possible QE program as adopted by the US and UK. The announcement of their next move is expected on 5th June.

Elsewhere tensions continue to rise between Russia and the Ukraine with the Ukraine pushing on with operations to remove separatists from eastern borders. If Russia was to disrupt elections in the Ukraine, the US and other allied forces would impose further sanctions on Russia, already suffering from slower growth as a result of current sanctions.

No local data today but the Chinese Foreign Direct Investment number out at lunchtime might spark some much needed movement. The number, which represents the total investment capital made by foreign enterprises, economic organizations and individuals, above the previous read of 5.5% could see a boost for the Aussie in afternoon trading.

Market Watch

WTI Oil rose to a three week high as government report showed stockpiles fell 592,000 barrels last week and US gasoline demand increased to six month highs. Gold rose to a one week high as mounting political unrest in Ukraine boosted demand for the metal as a safe haven asset.

US stocks fell from all-time highs sending benchmark indexes down from all-time highs as investors resumed selling in small cap and internet shares as company’s earnings were scrutinized. The S&P500 fell 0.50 percent after climbing above 1900 for the first time yesterday.

Yesterday’s trading session saw the Aussie Dollar make a short rally to test April’s highs coming from increased speculation the RBA will raise interest rates later this year. This fuelled more risk appetite buying and drove the market almost 50 points higher. However this was short lived as the overnight session managed to subdue this enthusiasm and we are now trading near yesterday’s open.

Overnight the main market mover was the US Dollar falling against a basket of major currencies for the first time in four days as Treasury yields declined on speculation the ECB will introduce easing measures to boost the EU economy by next month. The Euro slowed its recent selling as traders started to take profits following a solid week of selling waiting for further confirmation from tonight’s European Inflation numbers out of France and Germany.

The Greenback saw a better than expected PPI m/m number coming in at 0.6% compared to a forecast of 0.2%. This is a good indicator of consumer inflation, as this shows that when producers charge more for goods and services that the higher costs tend to be passed on the consumer. The market will be looking at Core CPI, Unemployment Claims and Philly Fed Manufacturing Index data tonight to see movements against the Aussie.

The jigsaw mats market is stable at the moment. There is sufficient supply even though demand is currently high. There continues to be demand from a broad range of users. May will see the arrival of yet another shipment of 40mm jigsaw mats for Ezymats. There is also talk of other thicknesses like 20mm and 300 and a high likelihood of vinyl mats hitting the market.

Foreign Exchange Outlook

The USD index has bounced off its lows, driven by the softer EUR.  The US ten‑year continues to trade near the bottom of its 2014 range.  US retail sales (Tuesday) and a speech by Fed Chair Yellen (Friday) are the US macro highlights.  While US developments may cause some intra‑day volatility near‑term movements in the USD will be driven by ongoing reaction in the EUR to building expectations of future ECB policy easing and geopolitical tensions in the Ukraine.  The USD should be supported near‑term, but over the medium‑term relatively lower US real interest rates and the US’ US$380 billion current account deficit should remain headwinds. 

The Australian Federal Government Budget (Tuesday) is unlikely to have any lasting impact on the AUD.  The budget should help underpin Australia’s AAA sovereign credit rating, at a time the transition in the domestic economy away from mining‑investment led growth is coming through.  Expectations are that the Chinese economy picked up momentum in April (activity data due Tuesday) which should be AUD positive.  It is expectedAUD/USD and selected AUD crosses (particularly AUD/EUR) to remain supported.  

In Australian rates the highlight of the week is the Australian Federal Budget on Tuesday.  A tight budget could lift expectations that the RBA is on hold for longer.  There shouldn’t be a lasting impact in the rates market.  Offshore developments such as tensions in the Ukraine remain a focus and should dominate moves in the long‑end.