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Chinese data and commodity price slide to weign on Europe market open
00:00, 15 April 2013
Last week’s plunge in commodity prices continues to be largely ignored by equity markets, despite growing evidence that economic growth is likely to continue to disappoint on the downside. Weaker than expected US retail sales and confidence data on Friday saw Brent oil prices drop to nine month lows, copper prices drop $9, while gold prices collapsed to June 2011 levels as fears about inflation ebb away, despite large scale stimulus measures from central banks around the world. Despite this bleak demand outlook European markets have to date held up fairly well however this could well change at the start of another potentially busy week after Chinese economic data came in worse than expected. Last week we saw data showing that Chinese imports jumped sharply in February which raised hopes that the Chinese economy was showing a significant recovery after its slowdown in recent quarters. These hopes look to be somewhat misplaced after both GDP and industrial production came in well below expectations though retail sales did improve slightly. The latest annualised Q1 GDP numbers show growth of 7.7%, missing expectations of a rise to 8% and a fall from 7.9%, while industrial production in March fell from 9.9% to 8.9% missing expectations of a rise to 10.1% Retail sales for March did show a rise coming in at 12.4%, up from 12.3% the previous month. Events in the periphery are also likely to continue to keep investors cautious as Cyprus continues its weekly softening of the recently imposed capital controls. Events out of Dublin at the weekend European finance ministers could well impact banking stocks this morning after German finance minister Schaueble suggested that any move to banking union would likely require some form of treaty change. If Germany has moved to this position then any prospect of shared liability of any kind is likely to take years to achieve, and as such any effective framework for a resolution mechanism originally envisaged for 2014 looks increasingly like an optimists pipedream. With the G20 due to meet at the end of this week in Washington the recent sharp decline in the yen is likely to be a hot topic for conversation amongst the various parties in light of the recently aggressive monetary easing from the Bank of Japan recently which caught markets slightly off guard and saw the yen almost reach the 100 level against the US dollar for the first time since 2007. In a sign that US officials are a little worried about the recent yen weakness the US Treasury warned Japanese officials about actively trying to weaken its currency saying it will closely monitor Japanese policies and the extent that they support domestic growth. In comments last week Bank of Japan Governor Kuroda was at pains to reassure Japan’s trading partners that they were not looking to adopt a beggar thy neighbour attitude with respect to his country’s exchange rate, a point he is likely to repeat today ahead of this week’s G20 summit in Washington. The latest industrial production data for February showed a rise of 0.6% in contrast to January’s 0.1% decline. It is also set to be a busy week for the UK and sterling, given the recovery seem in recent weeks on reduced near term central bank easing concerns, and slightly better than expected Q1 economic data. This week sees the latest inflation numbers, as well as the latest minutes from the Bank of England, the unemployment numbers and March retail sales numbers which could well take a hit after the unseasonably cold weather spell. In light of recent economic data from the US the latest Empire manufacturing survey for April will be assessed closely for any improvements on last months 9.2 reading. Expectations are for a reading of 7.2 reinforcing the notion that the US economic may well be hitting a slight dip as some of the sequester cuts start to bite. Irrespective of the economic data investors are set to continue to focus on the latest profits numbers as the latest company earnings continue to take centre stage. In company news Primary Health Properties casts a lonely figure on the UK company calendar today, releasing an Interim management statement. The firm recently reported a favourable refinancing of a £49.8 million debt facility originally provided by Aviva. The debt was originally taken on in the acquisition of Apollo Medical Partners last year. The FTSE100’s mining heavyweights will pay specific attention to this morning’s key Chinese economic numbers in early trade. With the likes of Xtrata Rio Tinto, and BHP Billiton traditionally sensitive to the Chinese growth outlook in light of the country’s historically voracious commodities appetite. BHP has already promised more cost cutting after forecasting a slowing growth rate from the worlds’ premier consumer of commodities. In Europe Dish Network Chairman Charlie Ergen has informally approached Deutsche Telekom about a possible merger with the German company's T-Mobile USA unit, according to Bloomberg. In the U.S, following hot on the heels of last weeks numbers from JP Morgan, banking giant and sector peer Citigroup will report Q1 earnings today after a revenue miss from rival JP Morgan led the sector lower on Friday. Expectations are for an EPS of around $1.18, with revenues up 3.6% at $20.1billion. Last month, Citigroup agreed to pay a total of $730 million to settle claims from investors that bought debt and preferred stock from 2006-2008. March also saw an upgrade from UBS and a reiterated buy rating from Deutsche Bank following a meeting with Citigroup management on March 19th. CMC Markets is an execution only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person