Asia braces for China data

Risk trades may not materialise in early Asia today as investors brace for a swathe of Chinese data at 10:00 SGT today.

China Databoard
Source: Bloomberg

US markets were still closed yesterday for Martin Luther King day, while European indices remained sluggish.

There is a potential for a bounce in market sentiment, only if the actual reading outperformed the estimates. I don’t see much chances for a significant upside surprise. The consensus is for GDP for Q4 and 2015 to come in at 6.9%.

Recall that President Li Keqiang said during the opening of the Asian Infrastructure Investment Bank a few days ago that China’s economy grew at about 7% last year. So the forecast is in line with the President’s words. Meanwhile, December numbers for industrial production, retail sales, and fixed urban assets will also be released alongside the GDP figures

In an attempt to ease fears of more yuan devaluation, the President also said that Beijing does not intend to use a cheaper yuan to boost exports. However, any evidence of fresh weaker yuan fixing would doubtlessly pull the markets into a ‘currency war’ overdrive. Who said that the markets are rational in the short term?

Furthermore, if it is the will of the markets to push yuan lower, then propping up the currency to keep it stable will cost too much, even for China with multi-trillion dollar reserves. A cushioned or stepped decline for the CNY is the likely scenario.

Overall, market players will exhibit a dollop of caution today. From my point of view, any rallies on any China outperformance will be quite limited and temporary. The Shanghai Composite remains below the key 3000 points, although yesterday’s positive close was a relief for punters.

 

Markets

  • Asian stock index futures showed mixed performance, underscoring the jittery mood, as US markets were closed on Monday. European indices ended lower. Stoxx Europe 600 closed down -0.4%.

 

  • Brent fell deeper below $30, validating analysts’ projections that we could see $20 oil. The European benchmark crude fell as low as $28.55, bring year-to-date losses to 23.4%. Out of 11 sessions so far this year, only one session closed in gains. Iran’s oil ministry instructed to raise output by 500,000 barrels a day after international sanctions were abolished. But OPEC expects a deeper drop in oil supplies this year as low crude prices squeezed US and Canadian oil producers. They expect non-OPEC supply to shrink by 660,000 barrels a day this year, compared to previous estimates of 270,000.

 

  • Research from Rystad Energy showed that at the current oil price, Saudi Arabia, Kuwait and Iraq are still able to make profits, where their costs are around $10 or less. However IMF warned that they could run out of cash within five years if oil prices doesn’t move back above $50. In the US and Canada, production costs are $36 and $41 a barrel respectively. It’s even higher in Brazil at nearly $49.

 

 

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