Markets undecided on China GDP

The markets were at a loss at interpreting the Chinese growth data. The better than expected Q3 growth at 6.9% against 6.8% forecasted, buoyed by stronger services sector (+8.4% ytd) and consumption, which should breed some positivity in the financial markets. 

China Stock Chart
Source: Bloomberg

One may argued that the year-to-date growth is still slightly below the official target of 7%. But what would followed is rising expectation of the Chinese’ penchant for stepping up stimulus later in the year to ensure they meet the full-year target, or close to it. More stimulus usually will be supportive of risk markets as well.

The softer growth in the factory output (+5.7% y/y) and fixed asset investments (+6.2% y/y ytd) also hearten hopes for more stimulus

Then, there is that concern about the reliability of Chinese data. Some analysts are sceptical about official data, especially GDP readings. They are saying that the central government is overstating growth.

Interestingly, there are also economists on the other side of the fence, arguing that official growth numbers are understating economic activity, as they do not adequately capture contribution from the services sector. It is perhaps this issue that is confusing market participants. How exactly are they supposed to make of the official data?

The Shanghai Composite (SHCOMP) initially rallied on the data, adding about 0.6% into midday. However, the index subsequently pulled back towards 3350 from two-month (and intraday) highs of 3423, weighed by the telecommunications sector (-2.5%). The SHCOMP eventually closed near flat.

It is probably worthwhile to point out that the SHCOMP is approaching an important key level at 3500, where a few months earlier, was the line drawn in the sand for the Chinese government. The level had held for most of July and August, before giving way on 24 August, aka Black Monday. The SHCOMP remained below 3500 since then.

With China data out of the way, the only other event of note this week is the ECB policy meeting on Thursday, 22 October, where investors are anticipating more monetary easing in the months ahead. The markets will watch the ECB President Draghi’s press conference with great interest, focusing on language relating to the central bank’s view on inflation and its QE programme.

 

Singapore supported

The Straits Times Index (STI) remained supported above the key 3000 level, although further upside was not forthcoming, given the tepid action seen in Asia. The index was weighed by the >1% drop in Singtel, which could be seeing some profit taking activity after the strong rally earlier. The share surged 9.4% in the first two weeks of October, rising from SGD3.60 on 30 September to SGD3.940 on 16 October. As long as Singtel price remained above SGD3.79-3.80, the upside should prevail. A break of this level, could bring prices down to SGD 3.50-SGD3.60 region.

Noble held firmly to the SGD0.50 level, where the negative news surrounding the embattled commodity company seemed to have being priced in. I feel it is fair to say that the SGD0.40 is probably the key support level to fend off further selling, where the 6 October close of SGD0.38 was short-lived.

Noble continued to improve its assess to credit, announcing that it has completed a USD 1.1 billion revolving credit facility on Monday. The facility was increased from an initial SGD 450 million, according to Noble, which reflected lenders’ support in the firm. It probably helped that Jefferies issued a ‘buy’ call on Noble last week, believing that the selloff has been overdone.

It remains to be seen whether Noble’s credit rating may be downgraded, which will certainly increase its borrowing costs. Moody’s and S&P had downgraded their outlook for Noble to negative this year, although CEO Aliereza said previously that the outlook cuts won’t translate to a rating downgrade.

 

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