China Reduces GDP Estimates

Daily Analysis - 05/03/2015

Weakening Outlook Forces Chinese Planners to Pare Back 2015 Growth Targets

The economic miracle of China might be coming to a quicker end than previously forecast as highlighted by the latest disclosures of the government regarding 2015 growth targets. Pointing towards a domestic economic reorganization and growing risks, the Central Planners will likely ease monetary policy further to aid the economy in achieving said targets.

China Faces Risks to Outlook

China has announced its 2015 GDP target of 7.00% after Chinese Premier Li Keqiang highlighted the expanding risks to the growth outlook. This comes on the heels of the latest interest rate cuts by the People’s Bank of China and growing concerns about liquidity conditions. The remarks from the Premier sent stocks tumbling with the Chinese offshore Renminbi trading substantially weaker after the comments. Annualized trade growth for the export nation is targeted at 6.00% but downward economic pressure both domestically and internationally may weigh heavily on these efforts. Cooling global economic conditions might harm these efforts which will be hampered further by rising nonperforming loans on Chinese bank balance sheets.

Oil Surges Following Beige Book

Following disappointing API crude stocks data which saw oil prices rise modestly, yesterday’s Energy Information Administration data on oil inventories smashed expectations, rising 10.3 million barrels in the last week. This marks the fastest build to inventories on record as the most recent number is the weekly largest inventory gain since 2001. Prices fell immediately after the announcement, dropping below the $50 handle as it emphasized the growing oversupply concerns. However, hours later following the release of the Federal Reserve’s Beige Book prices soared 4% higher on no news. Reasons for the surge could be attributed to ISIS blowing up a major pipeline near Tikrit or rebels in Yemen carrying out similar disruptive activities although the knee-jerk reaction to this news was muted.

IMF Director Comes Clean on Greece

In a shocking omission, IMF Executive Director Paolo Batista admitted on Greek TV that the true intentions of the bailout packages organized for Greece was to save French and German banks with serious exposure to Greek assets. Instead of letting creditors suffer losses from imprudent lending, the bailout transferred the risks from banks to taxpayers highlighting the true nature of the IMF’s activities. None of the bailouts were intended to help the Greek’s but rather ensure the rest of Europe’s success at Greece’s expensive. His scathing criticisms also extended to the European Central Bank, Euro Area finance ministers as well as IMF Managing Director Christine Lagarde leading him to suggest Greece should completely restructure debt by negotiating directly with the IMF. This commentary along with other factors sent EURUSD tumbling below recent lows at 1.11 ahead of today’s ECB interest rate decision and press conference.

NZDUSD Ascending Triangle Technical Pattern

The main driver of major currency pairs continues to be the dollar which after reaching 12-year highs looks likely to experience a pullback from recent strength. After rebounding from multi-year lows, NZDUSD continues to drive higher as the Reserve Bank of New Zealand keeps policy on hold and the Federal Reserve promises patience on interest rate hikes. With no imminent data out from New Zealand, US employment data will be the main drivers of rates in the coming sessions. NZDUSD is currently setup for an upward breakout via the formation of an ascending triangle pattern. The technical pattern has a bullish bias with any break above resistance at 0.7610 likely to spur upside momentum. Any break below the prevailing uptrend line is indicative of a reversal in the pair and breakdown in the pattern.