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​​​Mixed data from China ends with positive market reaction

In this article we look at the recent stimulus, trade balance and GDP data out of China and how local index is reacting to the news.

​Its been a busy week for China with a plethora of data out to influence Asian markets.

PBOC moves to increase credit growth

The People's Bank of China (PBOC) has lowered the country’s reserve requirement ratio (RRR) rate by 50 basis points (0.5%). The lower RRR rate provides further liquidity to the banking sector in China and is an attempt to further stimulate credit growth within the region.

The rate cut is effective as of the 15 July and is expected to inject more than $150 billion into the Chinese economy. The move to surprise markets with easing measures perhaps a suggestion that policymakers are concerned about the pace of recovery.

China’s trade surplus larger than expected

Balance of trade data from China has come in well ahead of consensus, with exports having surged 32.2% year on year (YoY), and imports gaining 36.7% YoY (in dollar terms) for the month of June. The net effect sees China with a trade surplus of $51.53 billion last month.

The strong trade data highlights increasing demand from the world’s second largest economy, while easing restrictions and vaccine rollouts see developed economies increasing their activity as well.

Chinese GDP a slight miss, but still robust

Second quarter gross domestic product (GDP) data showed economic growth of 7.9% YoY. The figure was slightly below consensus estimates which had predicted 8% growth over the period. Quarter on quarter growth (q/q) between quarter one (Q1) and quarter two (Q2) was realized at 1.3%.

China was the only economy to have maintained a positive annualize GDP figure for 2020, and the current year’s growth data highlights a robustness within the world’s second largest economy. Consensus estimates (from Refinitiv data) now predict more than 8% GDP growth for the region in 2021.

China A50 – technical analysis

The China A50 cash index has reacted positively to the Q2 GDP news rebounding of the 16490 support level. Circled blue we see that the price has formed a bullish reversal pattern (bullish engulfing) off this support level. The price reversal is given further validation by the oversold signal on the Stochastic oscillator.

These signals suggest a further rebound for the index with 17130 the initial upside target. A break of this level would further target the next level of resistance considered at the 17735 level. Traders who are long consider using a close below 16490 as a stop loss indication for the trade.

Summary

  • The PBOC has moved to increase liquidity and improve credit growth in China
  • Balance of trade data shows increased economic activity, particularly in developed markets
  • China on track to deliver economic growth in excess of 8% in 2021
  • The China A50 Cash Index has formed a bullish price reversal off support suggestive of a near-term rebound

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