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China’s Economy Gains Momentum

Daily Analysis - 13/12/2016

Industrial Activity Expands at Fastest Rate in Months

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In a sign of improving times, Chinese economic fundamentals displayed significant improvement as domestic consumption rose much more than anticipated while industrial production growth accelerated for the first time in months.

Chinese Manufacturing Expands as Mining Slips


Despite numerous headwinds including accelerated capital outflows and ongoing downward pressure on the Yuan, the Chinese economy experienced positive momentum during the month of November.  Besides industrial production growing at the fastest pace since August, climbing to 6.20% in November versus 6.10% in October, fixed asset investment remained in growth territory at 8.30%.  Better industrial figures were primarily driven by rising manufacturing output alongside electric, gas, and water production which rose by 9.90% on an annualized basis.  Contributing to the more optimistic viewpoint were retail sales figures which outperformed forecasts by a wide margin, increasing 10.80% year over year.  Nevertheless, concerns remain about the integrity of Chinese economic data.

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German Inflation Growth On Hold


Echoing preliminary estimates, German consumer prices grew by 0.80% during the month of November.  Besides mirroring October’s figure the number matches the fastest pace of growth in inflation since October of 2014 in a sign that the accommodative monetary policies undertaken by the Central Bank are taking root.  The main drivers of the gains in the CPI basket were attributed to rising food prices while falling transportation costs prevented greater upside in the figure.  All the other monthly and annualized inflation data met expectations, displaying no big surprises during the month of November.  However, better trade and the lowest unemployment in 35-years may help spur greater gains in prices in the coming months as a cheaper Euro benefits the export economy.  After a modest pullback on Monday, the DAX 30 equity benchmark is back on the rise.

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US Government Deficit Climbs Further


Continuing a longstanding trend of deficit spending, the latest figures from the US Department of the Treasury show that the government ran a budget deficit of $137.0 billion during the month of November, missing expectations of $135.0 billion.  However, with Republicans controlling both the House and Representatives and the Senate, there are already rumblings of increased fiscal responsibility.  Some prominent Republicans are threatening to torpedo President-elect Trump’s ambitious fiscal spending plans and tax reforms, claiming that it would increase the deficit even further at a time when spending discipline is necessary.  Adding fuel to the fire is Trump’s divisive pick of Exxon Mobil CEO Rex Tillerson for Secretary of State.  The Republicans pouring cold water on stimulus plans saw the S&P 500 retreat on Monday, recovering modestly during the Asian session on Tuesday.

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Copper Gains on Rising Chinese Manufacturing


Data released earlier pertaining to Chinese industrial activity spurred a temporary rebound in copper prices as greater manufacturing demand improves the outlook for the base metal.  The rapid rally over the last two months has been catalyzed in large part by growing expectations of fiscal stimulus measures in the United States and other advanced economies.  Tepid growth combined with low inflation is forcing governments to take a more proactive role in the economy as central banks reach the limits of monetary policy.  Plans to invest in and rebuild infrastructure has been a significant driver of momentum, however, any political moves to prevent stimulus measures from taking root could see the rapid rise in copper prices unwind to the downside.  Copper is flat on the session after giving back earlier session gains.

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