It seems appropriate that a big showdown for traders may occur at noon in Sydney and Melbourne today. For the first six weeks of this year, stock markets plunged led lower by China as its 2015 bull market continued to unravel. At the time, however, it was uncertain whether the selling was being driven by market internals or by expectations of a major slowdown in the Chinese economy. In addition to that, there were questions over whether market volatility and trading losses could provoke a broader slowdown in China.
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.
There have been no major announcements after the US close so far today.
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