Markets were awash with rumours yesterday that the Chinese GDP data was going to be much higher than expectations, but we saw a classic case of buy the rumour sell the fact as the number was not as good as the rumour spreaders had hoped.
Whilst Asian stocks have ended the week in the black they and other risk assets such as the Aussie dollar and copper prices retreated from their highs. This is having a mild knock on effect for European indices at the open as they start the final day of the week slightly in the red. The FTSE is trading at 5700 at the time of writing and resistance is seen around 5770/5810, meanwhile support is seen at 5600 and 5535.
But the Chinese data was by no means a travesty and goes some way to indicate that those plugging the hard landing line are not yet seeing their predictions unfold. Even though the country is now growing at its slowest pace in three years China continues to expand at a ferocious pace, and even if their domestic property market is on a downward spiral and demand from their biggest customers, developed economies like ours, is waning the demand within China is starting to really pick up and fuel the country’s economy. They remain key to the overall global economic picture as their ever increasing middle class consumes more and more of the products that the West produces. At the same time the government maintains a pro-growth stance and is keeping the stimulus tap at a trickle with the ability to turn it on at a much faster pace if necessary. The untapped domestic demand has the potential to keep China’s GDP at elevated levels for a long time to come, but not at the sort of levels they have seen over the past decade. Their existing policy of gradually bringing down growth to a more sustainable level looks for now to be working.
But the bulls can’t get complacent as yesterday’s Italian bond auction acted as a reminder that demand for their debt is not exactly high. It’s a quiet day for the bond markets so investors will be focusing on US earnings and economic data.
On that note the economic data out today comes in the form of inflationary numbers. In the UK producers will be delighted to see that their prices are expected to show a big decline with the month on month PPI due to fall from 2.1% to 1.2%. Similar is expected across the pond where CPI is due to decline, however when you strip out the food prices a small month on month rise is expected.
As the euro continues its bounce off support at 1.3030 bulls gathered momentum and took the single currency through the 1.3200 level. The risk on sentiment was due to an improvement in EU Industrial Production, and the suggestion that another round of stimulus could be on the way from the Federal Reserve. The gains couldn’t be sustained and this morning EUR/USD is at 1.3180 with the immediate resistance level seen around the 1.3220 area, but the big test for the bulls will be the stubborn 1.3380 level where they have met stiff resistance in the past.
Gold futures climbed Thursday on expectations that demand for the metal as an alternative asset would hold up after Federal Reserve officials voiced support for the central bank's accommodative monetary policies. Spot gold was up $20.90 yesterday taking it to $1679.5 an ounce. A pair of leading Federal Reserve officials underlined their support for an accommodative monetary policy, saying the fragile U.S. economic recovery still merited support from the central bank. This morning the yellow brick is just slightly lower at 1675.
Nymex crude oil finished in the black on Thursday gaining 94 cents to $103.64 a barrel, despite the IEA stating that supplies remain ample. Prices have been weighed by a weakening outlook for the US economy and easing tensions with Iran, but traders shrugged off the bearish cues and instead focused on the possible implications of more Fed stimulus.