China GDP still in focus with US markets shut

With the US shut for Martin Luther King Day, overnight leads are thin, meaning another day of digesting the China GDP data.

From a market perspective, yesterday’s GDP print was exactly what was required. Markets needed to see the status quo hold firm, as a read well above or below estimates would have led to the market expecting further tightening or further inaction.

The transfer of China’s economy from a boom economy into a sustainable economy will take time, however the market was unlikely to tolerate a boom read or a read which would suggest a hard landing, and that is why yesterday’s numbers went relatively unnoticed.

The reaction in the repo market was also interesting, having seen the seven day rate increasing 153 basis points from 4.79% to 6.32%; the biggest jump in the rates since the PBoC crackdown in June last year. The jump can be put down to the GDP figure, which was slightly better than expected at 7.7%, and the market therefore expecting the PBoC to further wring out speculative lending by slowing the credit market once more.

However, overnight the Bank opened up a pre-existing loan facility to moderate the credit squeeze expected during the Luna New Year holidays; this will reduce the credit crunch fears and assure funding continues to follow into the Chinese economy over this period. This is further proof both the central bank is monitoring the situation daily and is unlikely to let the money markets get too far out of hand.

Ahead of the Australian open 

Today marks the start of the Australian earnings season, with G.U.D holdings releasing its first half numbers. Although earnings season doesn’t hit full pace until mid-February, the G.U.D numbers are an interesting snap shot of demand for retail and industrial capital goods.

Expectations are for the sunbeam brand to see further deterioration in market share and sales as imported brands and demand for lower end products taper off. Lower margins and lower sales are also expected from its materials handing business as Dexion sees a consolidation from its traditional clients with lower orders and mainly lower end products.

The bright spot may come from its water division as innovated watering products and set ups for agriculture and material firms lead to stable returns.

The results are unlikely to be market-moving but will give a slight insight into what to expect come the proper start of first half earnings season.

With the US shut the leads for today’s trading session comes from the futures markets. Currently we are suggesting the market will open up at 5296 a one point gain at the 10am bell (AEDT).

It is interesting to see that BHP is likely to continue to push ahead having closed at $38.00 yesterday with is ADR pointing to a further nine cents to be added despite the fact iron ore is has fallen to US$124.80 a tonne. The bearish calls on iron ore are growing and that is only expected to get louder as China continues to stock pile the raw material and record production numbers flood the market. The reason for the run up in BHP is likely to be two-fold, one: the China data from yesterday was supportive and two: BHP’s fourth quarter production numbers are due tomorrow pre-market.

Expect a fairly slow trading day as macro news is low and the micro data is just as low. Watch for positioning however in the material and energy spaces ahead of further production numbers.

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