For the latest ETF industry news, please refer to our “Asia ETF Roundup (Industry) – July 2015”.
Major Markets Performance
The Chinese equity markets plunged during the month (CSI 300 -15%; Shanghai Composite -14%; HSCEI -14%). The Chinese government stepped in and took aggressive steps to curb the decline. For additional details, please refer to our “ETF Lessons Learned from the China A-Share Markets’ Recent Tumble”. On the other side of the world, concerns related to the Greek debt crisis ebbed somewhat after Greek Prime Minister Alexis Tsipras reached an agreement on the reforms required to secure a bailout, although the agreement still requires parliamentary approval. Developed equity markets’ performance was generally positive for July. The S&P 500, the FTSE 100 and the Nikkei 225 rose 2-3%. The performance of emerging- and frontier-markets was mixed. Brazil performed poorly, as stocks dropped 12% as the government slashed its fiscal surplus goals and credit agencies warned of the potential for further downgrades. Indonesia, Russia, Taiwan and Thailand dropped 5-8% while Pakistan and Vietnam advanced 4% (as measured by the MSCI indices covering these markets, expressed in USD terms).
The U.S. dollar appreciated in July (ICE USD Spot +1.9%). Asian currencies dropped anywhere from 0.1% to 4.7% against the U.S. dollar.
Precious metals’ performance in July was very weak. Gold, platinum and silver prices dropped 6-9%.
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Economic and Market News
US Rate Hike to Come Later This Year? New Zealand and Russia Cut Rates Again; Brazil Hikes Rates Again
- US Fed Minutes (June 2015) and Semiannual Monetary Policy Report to the Congress – The minutes of the June Fed meeting did not provide clarity on the timing of a rate hike. Subsequently, on 15 July, Chairwoman Yellen testified the Fed’s semiannual Monetary Policy Report to the Congress and stated that “If the economy evolves as we expect, economic conditions likely would make it appropriate at some point this year to raise the federal funds rate target, thereby beginning to normalize the stance of monetary policy. Indeed, most participants in June projected that an increase in the federal funds target range would likely become appropriate before year-end.”
- US Fed Statement (July 2015) – Issuedon 29 July 2015, after a two-day FOMC meeting, the statement did not give a concrete timeframe for a rate hike and stated that “The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.”
- New Zealand Cuts Rates by 25bps – On 23 July 2015, the Reserve Bank of New Zealand cut the Official Cash Rate by 25bps to 3.0%. The Bank last cut rates in June by 25bps.
- Russia Cuts Rates by 50bps – On 31 July 2015, the Central Bank of Russia cut key rates by 50bps to 11.0%. It had previously lowered key rates in June, April, March and January 2015.
- Brazil Hikes Rates by 50bps - On 29 July 2015, the Central Bank of Brazil hiked base rates by 50bps to 14.25%. It had previously hiked rates in June, April, March and January 2015 and December 2014 (by 50bps each time).
Chinese Economic Data: Q2 GDP Growth at 7.0%; Inflation at 1.4% in June; Caixin/Markit PMI at 47.8 in July; Official PMI Fell to 50.0
- China’s Q2 GDP growth registered at 7.0%, the same pace as Q1, and is in-line with the government’s full year target of “around 7%”.
- China’s inflation rate landed at 1.4% in June, edged up from May’s reading of 1.2%.
- Official July PMI registered at 50.0, slower than June’s 50.2. Meanwhile, the Caixin/Markit China Purchasing Managers' Index (formerly the HSBC/Markit PMI) slipped to 47.8 in July, compared to June’s 49.4, marking a two-year low.
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