Chinese growth slows

By David Morrison  |  21/01/2019 15:27

China’s GDP growth continues to slow while there’s no breakthrough on trade talks with the US. Investors look ahead to monetary policy meetings from the Bank of Japan and European Central Bank
 
This week got off to a disappointing start following the release of some key economic data from China. Fourth quarter GDP fell to 6.4% annualised which is the slowest expansion since the nadir of the financial crisis in 2009. However, this was partially offset by a pick-up in Industrial Production which rose 5.7% from a year ago, well above last month’s +5.4% reading and the consensus expectation of +5.3%. Retail Sales and Fixed Asset Investment came in as expected. Chinese growth has been trending lower ever since April 2010 when it was just a shade under 12%.  Despite this, Asian Pacific stock indices ended Monday’s session modestly higher while US and European indices spent most of the session in negative territory. Traders trimmed back their long-side exposure following some negative comments over the weekend concerning the lack of progress in US-China trade negotiations, while volumes were lighter than usual due to a partial US holiday for Martin Luther King Day.
 
Central Bank meetings
 
Overall, the economic calendar is fairly light this week, partly due to a lack of US data releases thanks to the government shutdown. However, there are a few numbers worth looking out for: Tuesday sees the release of UK employment data, the German ZEW Economic Sentiment survey and New Zealand’s CPI. On Thursday we have Flash Manufacturing and Services PMIs from the US and Euro zone. The Bank of Japan and European Central Bank hold monetary policy meetings on Wednesday and Thursday respectively. Neither central bank is expected to announce any changes, but Mario Draghi’s subsequent press conference will be monitored closely.
 
Earnings season
 
Last week saw a continuation of the big risk-on move since the end of last year. Global equity markets got a boost following reports (which were subsequently denied) that the US was prepared help trade talks along by removing some of the tariffs it imposed on China. Technically, the S&P 500 has broken back above some significant areas of resistance including the 50% retracement of the October-December sell-off around 2,630. It now needs to consolidate above here this week, so it can target the 200-day Exponential Moving Average around 2,700. The fourth quarter earnings season got going with Netflix and most of the big banks posting some disappointing numbers, although these were generally shrugged off. This week brings results from the likes of IBM, Halliburton, Johnson & Johnson, Ford and Starbucks.
 
Euro slide continues
 
Last week the EURUSD broke below 1.1400 as investors expressed concerns over the downturn in the Euro zone’s economic outlook with talk of Germany entering a technical recession. The dollar was also back in demand despite the sudden dovish pivot by the US Federal Reserve just a few weeks ago. Traders sold euros and bought back dollars in a move which reversed much of the euro’s gains following its unexpected plunge at the beginning of the year. Meanwhile, gold fell sharply at the end of last week and the selling resumed on Monday morning. Traders rushed to book profits as risk sentiment turned positive with a sharp bounce-back in equity markets and a pick-up in US Treasury yields. Gold broke below support around $1,280 on Monday morning and a move below $1,276 raises the possibility of a more significant decline towards support around $1,260. On the upside there’s a strong band of resistance around $1,289-1292. Looking at the bigger picture, the outlook for gold remains positive if $1,276 holds on a daily closing basis.
 
 
 
 
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