The juggling dragon

China’s Q1 GDP came bang in line with consensus expectations at 7.0% year-on-year. It was weaker than expected quarter-on-quarter, but on the whole it’s a figure the central government will be comfortable with.

Source: Bloomberg

The moderating growth read illustrates the juggling act the central government and central bank are undertaking. On one hand it has moderate debt concerns, pollution and corruption while on the other it is still supporting employment, sentiment and consumption – the GDP figures look to be about right on these assumptions.

However, it’s the industrial production figures that will make Beijing sit up. The year-on-year figure was the lowest print in almost a decade, as was fixed asset investment. Retail sales were just as weak and the fact March’s exports were structurally weak (seen in Monday’s trade balance) in all jurisdictions (Europe, US, Japan etc) make me wonder if we are seeing a structural change in China? The GDP read was in line, so does this mean service consumption is offsetting the manufacturing slump? Certainly the numbers over the past three days suggest that’s the case.

Having seen two cuts to benchmark and market interest rates already in the past six months, as well as tweaks to the reserve requirement ratios and changes to policy around investment property, yesterday’s numbers would normally suggest further stimulus as the tweaks have not been enough to stop the decline.

Overnight Premier Li announced that defending the 7% 2015 growth target will be a ‘challenging’ task for the central government, further moderating expectations of bulk stimulus. He also suggested the central government will continue to transform its economy to a consumption nation – the juggling act therefore should continue.

Glum Australia

Australia remains a nation of pessimism as there is no good news heading into the May budget. Interestingly, the ASX remains at six-and-a-half-year highs and property prices are booming – the wealth effect hasn’t been this strong for a decade, yet we feel poorer.

The current situation in Canberra, the very public demise of the mining boom and petrol prices returning to previous levels – coupled with the fact the market expected another rate cut in March – has led to a very glum outlook from the Australian public.

Part of that glum feeling is based on employment fears – expectations for today’s read are for the unemployment rate to remain steady at 6.3%. However, the broader implications of the mining slow-down to supply-chain firms may see full-time numbers declining today. General risk to employment is creating a nation of savers and lower risk takers as employment risk builds.

Ahead of Australian open

We are calling the ASX 200 up 40 points to 5949. The energy space will be the sector to watch today. US energy firms gained 2.3% overnight and are up 6.8% for the month of April as oil closed at its highest level this year and logged its fifth straight day of gains. If oil maintains its current course it will log its best month since January 2013.

The movement of the energy sector in the US has enabled the S&P to cross the 50-day moving average, leaving it 0.5% off a new record high. This should flow through to the Australian energy sector this morning and will be a major reason for green screens this morning.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Find articles by analysts

Een artikel zoeken

Form has failed to submit. Please contact IG directly.

  • Ik wens per e-mail informatie van IG Group bedrijven te ontvangen over handelsideeën en IG's producten en diensten.

Voor meer informatie over hoe wij uw gegevens mogelijk kunnen gebruiken, bekijkt u ons Privacy- en toegangsbeleid en onze privacy website.

CFD’s zijn complexe instrumenten en brengen vanwege het hefboomeffect een hoog risico mee van snel oplopende verliezen. 79% van de retailbeleggers lijdt verlies op de handel in CFD’s met deze aanbieder.
Het is belangrijk dat u goed begrijpt hoe CFD's werken en dat u nagaat of u zich het hoge risico op verlies kunt permitteren.
CFD’s zijn complexe instrumenten en brengen vanwege het hefboomeffect een hoog risico mee van snel oplopende verliezen.