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China GDP, Brexit in focus

China Q3 GDP is likely to slow down to 6.1% from 6.3% in 1H19, according to various polls, with the forecast ranging from 5.9%-6.4%.

A cyclical downturn in the global economy, cooling external demand and a standoff in trade talks with the US has dampened the outlook of China’s economy. Nonetheless, domestic consumption in China is playing an ever more important role to cushion the slowdown and policymakers still have room to boost growth via measures like fiscal stimulus and monetary means.

The GDP reading may again proof to be a non-event for Chinese stock markets as it always has. But global markets will take it as an important gauge of fundamentals as China’s growth contributes to around 30% of global growth. AUD/USD is very sensitive to Chinese data and thus a big miss although unlikely, might result in knee-jerk selloff in the Aussie dollar and maybe the Kiwi as well.

USD/CNH has strengthened to 7.079 area on progress that US and China trade delegates are drafting a statement on stage one trade talks; showing both sides are willing to complete an interim deal. China aims to eliminate the trade tariffs and end this trade war via negotiations before more severe economic damage appears. Today’s GDP reading if missed, will probably weaken Chinese position in talks with the US. The reverse is true if the GDP reading hits higher.

European markets are sensitive to Chinese data as well, but Brexit is dominating the sentiment in currency markets this week. Sterling had a relief rebound on Thursday as Boris Johnson secured a Brexit deal with Brussels, but uncertainty remains high as the deal could be rejected in the House of Commons this Saturday. The Democratic Unionist Party (DUP) apparently expressed their opposition against this deal, which could allow customs barriers between Northern Ireland and the rest of the UK.

The Financial Times described Mr Johnson’s decision to strike a deal in Brussels without DUP support as ‘a massive political gamble’. And that is true for the sterling as well.

Traders on Monday morning may wake up and see a big gap on their screen.

US markets closed higher on Thursday, backed by solid earnings and tapering geopolitical risks as Turkey agreed a temporary ceasefire with Syria to allow Kurdish forces to retreat. However, the strength of gold price suggests that financial markets remain very vigilant on the developments in Turkey-Syria, Brexit and perhaps US-China trade talks. Gold price is trading at US$ 1,493 this morning, facing immediate support and resistance level at US$ 1,480 and US$ 1,520 respectively.



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