Chinese GDP
Today's GDP figures will be market moving - in a world where all G20 countries are struggling for >2% growth, China will probably show >7% and still disappoint market speculators.
The markets have been severely buffeted by the on/off QE speculation over the past few weeks, but have now managed to find a semblance of stability. Not so much in terms of volatility but more so psychologically. It seems that in broad terms, investors have largely discounted the possibility of Fed tightening i.e. the market doesn't believe the Fed’s optimistic recovery projections and thus see QE tapering as an non-viable policy direction for the time being. The Fed may want to reign in its ZIRP policy but market conditions and market dynamics are not allowing it to do so without severe fluctuations and instability. Overall, the Fed theme should now fade as market participants realize that there will be no more Fed manoeuvring until more US data is published. If U.S. data deteriorates, additional Fed support will be forthcoming and if U.S. data continues improving, we’ll see a rehash of the recent ‘will-they-or-won’t-they’ taper speculation. That is how speculators are seeing the market right now. Given that the markets are primarily speculative in nature these days, it’s the speculators that are setting the agenda and creating the headlines.
Going into this week, investor attention moves from the Fed over to Asia. China will publish important economic data such as GDP, Fixed Asset Investment, Industrial Production and Retail Sales. The rate of growth in China influences a variety of markets including currencies (AUD, NZD, ZAR) metals, commodities and equities because of China’s insatiable demand for raw materials and commodities.
However, this week’s data from China may disappoint considering other, loosely related data. Figures released last week showed that Chinese exports had fallen by 3.1% (vs. expectations of +4%) in comparison with the same period last year. That was the first fall in data for exports since January 2012. Imports fell by 0.7% in June (vs. expectations of +8%) in comparison with the same time last year. The new export-orders sub-index dropped to 45.8 (<50 indicates contraction). The Chinese economy is starting to slow down from its hypersonic growth rate and is taking demand for other markets off the table in doing so.
China has been the prime driver of commodities demand in the World, and prices have tended to inflate due to the sharp year on year increases in demand from Chinese firms. China consumes roughly 40% of all copper production in the world so Chinese slowing is likely to push down Copper prices in the short-medium term.
Going into this week, investor attention moves from the Fed over to Asia. China will publish important economic data such as GDP, Fixed Asset Investment, Industrial Production and Retail Sales. The rate of growth in China influences a variety of markets including currencies (AUD, NZD, ZAR) metals, commodities and equities because of China’s insatiable demand for raw materials and commodities.
However, this week’s data from China may disappoint considering other, loosely related data. Figures released last week showed that Chinese exports had fallen by 3.1% (vs. expectations of +4%) in comparison with the same period last year. That was the first fall in data for exports since January 2012. Imports fell by 0.7% in June (vs. expectations of +8%) in comparison with the same time last year. The new export-orders sub-index dropped to 45.8 (<50 indicates contraction). The Chinese economy is starting to slow down from its hypersonic growth rate and is taking demand for other markets off the table in doing so.
China has been the prime driver of commodities demand in the World, and prices have tended to inflate due to the sharp year on year increases in demand from Chinese firms. China consumes roughly 40% of all copper production in the world so Chinese slowing is likely to push down Copper prices in the short-medium term.
Summary of Chinese data this week:
GDP – (7.5% exp; 7.7% prev.)
Fixed Asset Investment – (20.3% exp; 20.% prev.)
Industrial Production - (9.1% exp; 9.2% prev.)
Retail Sales - (12.9% exp; 12.9% prev.)
FDI - (1.0% exp; 1.0% prev.)
It is important to bear in mind, that Chinese data has often been fabricated and adjusted so today's GDP number matter only insofar as it provides trading opportunities for speculators. The true health of the Chinese economy is largely concealed and played down. If China requires a growth rate of >7.5%, that's what the statisticians tend to come up because it is required from higher up the chain of command. This kind of practise has become more common since the GFC put so much pressure on governments and central banks to meet key targets.
Commissioned by Think Forex
Fixed Asset Investment – (20.3% exp; 20.% prev.)
Industrial Production - (9.1% exp; 9.2% prev.)
Retail Sales - (12.9% exp; 12.9% prev.)
FDI - (1.0% exp; 1.0% prev.)
Commissioned by Think Forex
Written by George Tchetvertakov
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