The RBNZ kept the interest rate at 5.5%. Hedge funds sell Chinese stocks

Stronger-than-expected consumer spending increased the likelihood that the Federal Reserve may resume raising rates this year. Retail sales rose by 0.7% last month (the most significant increase since the beginning of the year), above expectations of 0.4%. According to the CME FedWatch Tool, bets on a Fed rate hike in November rose to 34% from 26%. But economists predict retail sales will weaken for the rest of the year as falling credit availability will weigh on economic activity and the labor market.

Fitch Ratings said yesterday that the agency might be forced to downgrade a number of US banks, including JPMorgan (JPM), if the banking sector deteriorates further. Another downgrade of the US banking industry to A+ from AA+ would force the agency to revise its ratings on each of the more than seventy US banks.

According to the ZEW report, German investor sentiment unexpectedly improved in August but is still in negative territory. The ZEW economic sentiment index rose to negative 12.3 points from 14.7 points in July. The slight increase in the reading indicates that investors expect Germany to improve by the end of the year.

Wage growth in the UK was slightly higher than expected, and this should only solidify the September interest rate hike by the Bank of England. But overall, the labor market showed signs of cooling as jobless claims rose sharply and the unemployment rate climbed from 4.0% to 4.2%. As for today’s CPI figures, there is some potential for a positive surprise on services inflation, but ultimately September’s 0.25% rate hike is considered a decided choice. Crude oil prices fell nearly 2% on Tuesday as deteriorating economic data from China, the largest oil importer, partially offset market enthusiasm for Saudi Arabia’s production cuts.

Asian markets were predominantly up yesterday. Japan’s Nikkei 225 (JP225) rose by 0.56% yesterday, China’s FTSE China A50 (CHA50) gained 0.19%, Hong Kong’s Hang Seng (HK50) fell by 1.03% on the day, and Australia’s S&P/ASX 200 (AU200) was positive 0.38% on Tuesday. On Wednesday, most Asian stocks began to decline amid fresh signs of deteriorating economic conditions in China, coupled with renewed concerns over the hawkish policies of the US Federal Reserve, which undermined appetite for risky assets. The Goldman Sachs report showed that hedge funds have begun aggressively selling Chinese stocks amid heightened concerns about the country’s real estate sector and weak economic data. Goldman Sachs estimates that hedge funds sold 70% of what they bought in the first five days after China’s July 24 Party meeting in hopes of stimulating the economy.

The Central Bank of New Zealand (RBNZ) expectedly kept rates unchanged at 5.5% and said interest rates should remain high or rise further due to the country’s challenging inflation outlook. The Central Bank acknowledged that some aspects of the New Zealand economy are currently slowing due to higher rates. The RBNZ expects consumer inflation to remain stable in the coming months as the country still struggles with the effects of this year’s two devastating cyclones. Weakness in the Chinese economy, which is New Zealand’s leading trading partner, is also putting negative pressure on the economy, especially as export prices fall.

Japan spent over 9 trillion yen ($62 billion) intervening in foreign exchange markets last year to stem the yen’s fall, buying the yen in September and October – first at around 145 and then at 32-year lows just below 152. Currently, the yen has already surpassed the 145 yen per dollar mark.