A slowdown in China’s GDP growth during the first quarter that matched expectations has been met with a muted response in Asian markets, leaving Europe setup for a slightly lower open.
Chinese Q1 GDP released Friday early AM slowed to slow to 6.7%, down from 6.8% in Q4. The data confounded some expectations that improved economic performance in February and March would offset the sharp slowdown seen during January. Retail sales and industrial production in China grew faster than expected in March to 10.5% and 6.8% respectively.
US stocks closed off the highs on Thursday but nonetheless the Dow Jones Industrial Average managed its highest finish since July. US banks JP Morgan, Wells Fargo and Bank of America have all reported lower profits in Q1. Market volatility has hurt trading profits and all the banks added to reserves to handle bad loans in energy sector while low interest rates have hurt margins. Stable growth in the US has at least allowed the consumer side of the business to grow with Americans signing up for more credit cards and auto loans.
In Europe, Greece is back in the headlines but the bailout deal is still in place so isn’t roiling markets yet. There is an increasing war of words between Athens and IMF that may heat up before July when a €3.5bn debt payment is due.
The US dollar has seen resurgence in the last three days. The dollar index is on course to finish the week higher after falling four of the last five weeks. US inflation picked up in March but it probably doesn’t materially change the picture for Fed since Janet Yellen has said she believes the recent increase in prices is transitory (ie oil prices) and Fed members remain wary of international and market turbulence. The China data and its implications for global growth maybe a better barometer of when the Fed will next hike than US data at this point.
The British pound has fallen this week as the market has begun to price in a predictably dovish Bank of England which voted 9-0 to leave rates on hold, flying in the face of the stronger inflation reported this week.
EURUSD – The euro added to Wednesday’s sharp decline with another close below 1.13 on Thursday. If the week finishes as a bearish engulfing candlestick, there is a good chance the price moves back to the middle off the long term range at 1.09.
GBPUSD – Cable dropped below 1.41, before pulling back off the lows on Thursday. There is scope for a down-sloping inverted head and shoulders pattern but price needs to hold 1.39 to keep that pattern alive.
EURGBP – The euro-pound pair rebounded off aforementioned support from the Feb 24 and March 24 peaks at 0.7930 on Thursday but closed below Wednesday’s high.
USDJPY – The dollar-yen stabilised above 109 on Thursday. Psychological resistance from 110 and former support at 11 suggest chances remain high for an eventual sell-off towards 1.07 then 1.06.
Equity market calls
FTSE100: to open 5 points lower at 6,360
DAX: to open 10 points lower at 10,083
CAC40: to open 11 points lower at 4,500
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