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China’s GDP Beats Estimates

Asian Markets Cautious Ahead of China Release Cheer Out-performance of GDP Indicator

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China GDP numbers posted a soft print of 6.90%, beating estimates but below the previous quarter's growth of 7.00%. Industrial production was not as optimistic, expanding at a slower pace of 5.70% missing estimates of 6.00%. The remainder of the session is absent major economic releases.

Fed’s Mester Makes 2015 Liftoff Case

Late Friday in her opening remarks at a New York institute, Cleveland Federal Reserve President Loretta Mester noted that the Federal Reserve should not delay hiking rates any further. She cited the near full unemployment rate of 5.10% as the main basis for lifting off interest rates while remaining optimistic that US consumer inflation would follow suit. The Fed’s preferred gauge of consumer inflation stood at 1.30%, below the target rate of 2.00% and recent economic data has shown declines in US production. Ms. Mester is one of the few hawks on the FOMC voting board as more and more members are pivoting towards leaving rates unchanged until the global risks dissipate. The USDJPY currency pair remains range bound, currently exhibiting no clearly discernible directional trend and trading near support at 118.73.

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Commodities Post Weekly Gain

The commodity markets closed another week in positive territory, led by a weak US Dollar and a general risk-on attitude across financial markets. Gold prices managed to hit a 16-week high on Thursday with prices briefly trading near $1191.56 before easing back to the downside. West Texas Intermediate crude oil futures closed last week at $47.24 after previously trading near the $50 handle briefly. Crude oil gave back its gains as the weekly inventory report showed US crude oil inventories experiencing a larger than estimated build to storage with stockpiles surging past expectations. The increase in commercial stock piles comes despite the US oil rig count continuing to decline, an indication that the more expensive shale oil producers are likely feeling the pinch of declining oil prices. Production continues to falter as marginal producers run out of cash and financing for existing projects.

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China GDP Expands Faster Than Expected

The markets were jittery into the release of the third quarter Chinese GDP numbers, but were relieved as official data showed a soft increase in broader economic activity. Beating analyst expectations by a small margin, GDP increased at a pace of 6.90%, but nevertheless printed below the previous quarter's growth rate of 7.00%. Chinese officials had previously commented that it would be difficult for the world's second largest economy to keep up the 7.00% pace of growth, sparking speculation that the biggest export economy could face a hard landing. Today's GDP numbers however were taken as positive with Asian equity markets trading higher while European and US equity markets are likely to follow the momentum. USDCNH is currently trading at 6.3758 in what looks like a steep consolidating falling wedge, which potentially points to an upside breakout targeting 6.5000 in the medium-term.

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US Equity Markets Looks to Earnings

The third quarter earnings season is back with this week seeing some heavy weight multinationals including Ebay, Amazon, IBM and Microsoft reporting their quarterly results. Last week, the US equity indices were shaky as Walmart’s shares plunged -12.00% after posting a disappointing quarterly report and a downbeat forward guidance outlook for the fiscal year of 2017. While the company is positive about its abilities to expand globally, particularly in Chinese markets, the pessimistic assessment and margin compression are worrisome indications. However, despite the earnings disappointments, the S&P 500 managed to end the week on a positive note, closing at 2025 on Friday. With the resistance being cleared at 1992, the S&P 500 could potentially dip back to 1992 to establish support before trending higher, with 2050 being the next level of interest on the upside.

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