This morning, investors will be looking out for China’s June Leading Economic Index released at 10am.
 
Last week, China’s data releases for the first half of the year failed to surprise the market but did provide more evidence of growth stabilization. In-line second quarter (Q2) GDP growth (+7.5% YoY versus consensus’ 7.4%), Upbeat Industrial Production growth (9.2% versus consensus’ 9.0%) and expanding credit growth (RMB loans Rmb1,080bn, M2 +14.7% vs. consensus’ 13.6%) were all evidence of the effectiveness of the mini-stimulus in first half of 2014. MER’s China economist, however, expects headline growth to moderate again in the third quarter (Q3) due to higher base and weakness in the private sector. Below are excerpts from the MER report released on Monday 21 July.
 

Home prices in China dropped in 55 out of 70 top cities in June, fuelling expectations of property policy relaxation. There were unconfirmed media reports on Home Purchase Restriction (HPR) loosening in city centre in Shanghai, and on Friday Wuhan was reported to have officially removed HPR for home units over 140sqm. The new Minister of Housing Chen Zhenggao shifted focus from demand-side austerity measures to supply-side policies incl. shanty town renovation and affordable housing. Chen’s call to clear residential inventories “with all efforts” pointed to potential policy easing going forward.
 
The State-owned Assets Supervision and Administration Commission of the State Council (SASAC) announced to pilot four State-Owned Enterprises (SOE) reforms in six central SOEs, but stock performances of the listed subsidiaries in the week suggest investors’ visibility remains low for the long-term impacts of such reforms. The next reform action plans to expect may include: 1) fiscal and tax reform (particularly on consumption taxes), 2) insurance sector reforms.
 
In addition to reforms, China equity investors are building up expectations on stock market connectivity between Shanghai and Hong Kong. According to the China Securities Regulatory Commission (CSRC), detailed rules of the Program will be released soon and a market drill will be held in late August, followed by a larger scale drill in September.

Outside of China, geopolitical tensions replaced Eurozone financial risks as the key concern. Last Friday the news of a Malaysia Airlines flight being shot down over eastern Ukraine triggered risk-off trading globally.

 
MER’s weekly technical analysis
MXCN rebounded early last week to retest the resistance around 63, but failed to confirm a breakout. Softer Relative Strength Index (RSI) and deteriorating volume may point to near-term consolidation; but a golden cross formed last week suggesting the index still looks to retest the early-December high at 66.

HSI, similarly, may consolidate below a key resistance around 23,500; support remains at 23,000.
 
CSI300 continued to be range bound around its 50-day moving average of 2,150 with neutral RSI. A pickup in volume over the past week may point to the end of a 3-month consolidation period in the coming weeks; the index has to break through 2,200 to confirm a breakout.