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China GDP Dithers

Weak Data and Revised Outlook Raise Problems for Chinese Policymakers

china-gdp

With Chinese Central Planners attempting to tackle the slowest growth in years amid a global slowdown, hard economic data is pointing to rising risks to the outlook. Even though the People’s Bank of China has held off on easing monetary policy further, the latest data points might necessitate a shift in policy to accommodate growth.

China GDP Confirms Slowdown

Much has been made of the difficult decisions facing Chinese policymakers as they struggle to manage growth with increased liquidity issues and rising nonperforming loans on bank balance sheets. The GDP numbers released overnight were largely in line with expectations with annualized GDP rising 7.00%, marking the slowest pace of increase since the last financial crisis. Quarterly GDP surprisingly missed expectations to the downside, expanding at a modest 1.30% and adding to a slew of weak macroeconomic figures. Industrial production fell to a 5.60% annualized growth rate from 6.80% but more concerning was the drop in fixed asset investment which fell to the weakest annual increase since the year 2000. The Shanghai Composite suffered its biggest pullback after recent exponential movements higher, falling -1.18% while the Hang Seng managed to outperform other regional benchmarks, adding 0.35%.

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Bad News is Good News

For US equity markets, bad economic news continues to translate into equity momentum despite the deterioration in the real economy. Retail sales data released yesterday showed that the long awaited consumer recovery remains elusive with retail spending growth missing expectations for 4-straight months. Stocks rose despite the disappointment after business inventories gained 0.30% versus the expected 0.20%. More concerning to the outlook than the retail figures was the drop in small business optimism which has underperformed estimates for 3-straight months. Small businesses are a vital component of the US economy and after months of delivering strong payroll gains, the trend looks to be reversing lower with hiring plans stumbling to the lowest levels in 6 months. The Dow Jones Industrial Average outperformed peers, climbing 0.33% during the session, led by the 2.20% gain in Chevron.

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Oil Dips Then Rips Higher

American inventory figures have not been enough to sap upward momentum in crude oil prices after another week of supply gains failed to offset calls for OPEC members to cut output and the weakest well productivity figures from Bakken Shale formations since 2009. With total output falling despite EIA projections that crude oil production is likely to rise over the next decade. Crude prices suffered brief losses after the API weekly crude stock figure showed inventories grew at 2.600 million barrels, well below the prior week’s 12.200 million barrel build. Storage at the Cushing Oklahoma facilities continues to approach maximum capacity, with over 90% of space filled. Today’s EIA inventory figures should provide further evidence regarding the state of supply and demand in one of the globes largest energy producing and consuming regions.

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S&P 500 Equidistant Channel

As the S&P 500 approaches new record highs, earnings season in full swing could be the stimulus that spurs further gains in the global benchmark. Although trending in positive territory year-to-date, there are a multitude of risks to the outlook including weaker revenue growth and earnings forecasts for the index’s constituents. Higher interest rates also have the potential to put a dent in corporate earnings as higher borrowing costs see companies reduce expenditures. The upward trending equidistant channel setting up in the S&P 500 since October remains largely intact, with an overwhelming bullish bias despite lagging fundamentals. Trend following strategies are the ideal way to capitalize on the upward movement, with any move outside of the channel lines to be treated as a breakout trade accompanied by increased volume and directional momentum.

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