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High Noon for stocks as trading hinges on China GDP

High Noon for stocks as trading hinges on China GDP

In recent months, fears of an economic collapse in China have eased and markets have started to recover. Data for China reported earlier this week, particularly exports, have been encouraging and suggest an economy that has at least stabilized and may be starting to turn the corner. Today’s GDP and other reports may give traders a better idea of which way China’s economy is heading which could have a significant impact on expectations along with earnings results/guidance on market sentiment for the next several months.

How China’s economy performs relative to expectations may have much wider ramifications beyond stock prices in Hong Kong, Shenzen and Shanghai. What the results mean for resource demand expectations could have a significant impact on commodity prices, resource shares in countries like Australia, Canada and the UK, and on commodity currencies like CAD, AUD and NZD. Defensive havens like gold, JPY and CHF may also be impacted by the China news.

These markets had benefitted from inflows of capital during the China panic earlier this year and have been retreating as fear subsides. Any change in attitudes toward China from the news may also have a significant impact on these markets.

Crude oil has held steady today which I find fascinating. Brent and WTI are showing really strong resilience following this week’s big jump in US inventories. Not that long ago, a small build than this week’s 6 mmbbls would have knocked both prices down 5% over a day or two. The inability of bears to knock the price back down indicates traders are focusing more on signs of falling US production and reports of recent comments from the IEA, suggesting the oil market surplus could fade away in the second half of 2016 as non-OPEC (read US shale) production declines. Speculation of a potential supply freeze deal this weekend may also be helping to support energy markets.
Earnings season may also continue to impact trading heading toward the weekend. Today, Wells Fargo beat the street confirming the positive result from JPMorgan. Better than expected results from Delta sparked a rally in airlines with American and United posting strong gains. This action indicates that expectations may still be overly pessimistic heading into the heart of earnings season leaving the door open to positive surprises.

Corporate News

There have been no major announcements after the US close so far today.

Economic News

Significant announcements released overnight include:

Bank of England decision    0.50% and £375B no changes to interest rates or QE as expected

US consumer prices                               0.9% vs street 1.1%
US core CPI                                           2.2% vs street 2.3%
US real average weekly earnings             1.1% vs previous 0.6%

US jobless claims                                  253K vs street 270K

Canada new house prices        1.8%as expected

Upcoming significant economic announcements include:

(Note: 11:30 am in Sydney/Melbourne is currently 1:30 pm in Auckland, 4:30 pm in Vancouver, 7:30 pm in Toronto/Montréal, 12:30 am in London and 8:30 am in Singapore)  

12:00 pm AEST        China Q1 GDP            street 6.7% vs previous 6.8%
12:00 pm AEST        China industrial production    street 5.9%
12:00 pm AEST        China retail sales        street 10.4%
12:00 pm AEST        China fixed assets         street 10.4%

2:30 pm AEST        Japan industrial production    previous 1.5%
3:00 pm AEST        Singapore retail sales        street 3.4%
3:00 pm AEST        Singapore retail ex auto        street (1.5%)

9:00 am BST        Norway trade balance        previous NOK 9.5B
9:30 am BST        UK construction output        street 0.7%

8:30 am EDT        US Empire manufacturing    street 2.00
8:30 am EDT        Canada manufacturing sales    street (1.5%) vs previous 2.3%

9:00 am EDT        Canada existing home sales    previous 0.8%
9:15 am EDT        US industrial production        street (0.1%)
9:15 am EDT        US manufacturing production    street 0.1%

10:00 am EDT        US consumer sentiment        street 92.0 vs previous 91.0
12:50 pm EDT        FOMC Evans speaking
1:00 pm EDT        US Baker Hughes drill rig count    previous 443


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