Markets hoping for good Chinese data today

While European markets had another terrible session overnight (US markets closed for MLK day), there are some developments particularly in the industrial metals space that are indicating we could be in for a bounce today.

Chinese data
Source: Bloomberg

Currently, Australia, Japan and Hong Kong are all looking to open down on the day. But the positive close on the Chinese markets yesterday and the potential for some good news from the major Chinese data release today holds out the potential for a bit of a temporary turnaround in markets today.

Chinese data

The further improvement in Chinese home prices in the NBS 70-city index helped Chinese markets stabilise, gaining 0.4% for a close above 2900. Lack of volatility in the CNY, stabilisation in Chinese equities and expectations for a decent performance in the Chinese data released today all seem to have contributed to a bounce in industrial metals. Nickel gained 2.3% and Copper 1.1%. Iron ore also jumped 3.8% overnight, which was also helped by falls in Brazilian shipments and reports of Chinese stockpiling ahead of Chinese New Year in February.

Today will provide a key insight as to the health of the Chinese economy with the release of Q4 GDP, retail sales, industrial production and fixed asset investment at 1pm AEDT. Current estimates are for:

  • Q4 GDP 6.9% YoY
  • Retail Sales 11.3%
  • Industrial production 6.1% YoY
  • Fixed Asset Investment 10.2%

Given the pick-up in a range of Chinese activity data we have seen in November and December, there is a decent possibility we actually see a slight beat for GDP, IP and FAI. If this were to occur, alongside further gains in Chinese equities, markets could be in for a short-term bounce today as they come off heavily-sold levels. I would particularly point to the Aussie dollar in this scenario, which could start to gain quite sharply off a decent Chinese cash market open at 12.30 AEDT and continue on an uptrend if we get some good Chinese data released at 1pm AEDT.

Oil

With the lifting of Iranian sanctions, oil is now suffering its most intense period of price pressures. While the oil price dropped 38.8% in 2015, the full scale of declines were unlikely to be met until the known unknown of new Iranian output was discovered. Judging by the 7.2% drop in prices seen since Thursday last week, the prospect of the 50 million barrels in crude sitting in Iranian tankers disorderly hitting the markets has clearly sparked fear. But the more pressing question for the oil price will be the pace at which Iranian oil production picks up. Iranian officials are determined to increase production by 500,000 barrels a day within a few weeks. Pre-sanctions, Iran was producing 4.2 million bpd in 2008; this dropped to 3.4 million bpd with sanctions by 2012. Given that and open questions about the pace of foreign investment, it does seem a bit of a stretch to see output increasing much more than 600k bpd to 1 million bpd within the next 12 months. With output still falling from higher-cost players, there is the increasing possibility that we see oil market oversupply peaking within the next few months and the cyclical low in the oil price within that time.

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