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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.
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.