Chinese GDP Growth Slows

Daily Analysis - 19/10/2017

Beijing's Efforts to Cut Debt Tempers Growth


China's gross domestic product expanded by 6.80% in the third quarter from a year ago, down from 6.90% in the previous quarter, as steps to rein in debt risks weakened activity. However, the figure was above the government’s full-year target, giving a boost to President Xi Jinping’s efforts to consolidate power during the Communist Party Congress that began on Wednesday.

Communist Party Congress in the Spotlight

The all-important 19th National Party Congress will determine the leadership team around President Xi and the Communist Party's direction for the next half-decade.  More than 2,200 delegates have assembled in Beijing for the week-long meeting, with investors closely watching the group’s economic and political announcements, which could potentially have significant global ramifications. In his opening speech, President Xi emphasized his government's steady handling of the economy, and called on party workers to “strive with endless energy” towards national rejuvenation.

In other economic news from the country, factory output increased 6.60% in September from a year earlier, topping expectations.  Meanwhile retail sales grew 10.30% last month from a year ago compared to analyst expectations for a 10.20% rise. AUDNZD, which is prone to fluctuations in China’s economy, has soared in early Thursday trade to around the 1.1135-mark.


US Housing Starts Drop to 1-Year Low

Disruption in construction of single-family homes following Hurricanes Harvey and Irma hammered US homebuilding activity to a one-year low in September. On a seasonally adjusted basis, housing starts fell -4.70% to an annual rate of 1.127 million units last month according to figures published by the Commerce Department on Wednesday. Apart from marking the third straight monthly decline in starts, another Commerce Department report showed a dip in building permits, raising fears that the recovery in the housing market was stalling.

Building permits slipped -4.50% to an annualized pace of 1.215 million units last month. This contrasts sharply with estimates gleaned by a Reuters survey of economists anticipating a slide in housing starts to 1.175 million units and building permits falling to 1.250 million units over the same period. S&P 500 futures are off the highs of the session to currently hover around 2560.


FTSE 100 Ends Higher on Listless Pound

Lacklustre figures on British wages put pressure on Sterling, helping lift UK stocks higher on Wednesday. Adjusted for price inflation and excluding bonuses, wages contracted by -0.40% in the three months to August, according to data from the Office for National Statistics. That marked the sixth consecutive drop in inflation-adjusted wages. The unemployment rate met expectations by holding steady at a 42-year low of 4.30%.

Pay growth has been continually lagging behind inflation, raising questions about how quickly the Bank of England can tighten interest rates amid expectations of an initial raise during the November 2nd MPC decision. FTSE 100 futures finished at 7,506 a session earlier, leaving it within striking distance of the record close set last week. Futures are marginally lower in Thursday Asian trade.


Japanese Trade Surplus Leaps

Stronger outbound shipments saw Japan’s trade surplus expand in September from a year earlier.  Customs data released early Thursday revealed exports surging by 14.10% to JPY 6.80 trillion ($60.30 billion) while imports grew 12.00% to JPY 6.10 trillion ($54.30 billion). The export pickup was largely in-line with a 14.90% increase projected by economists surveyed by the Wall Street Journal. Shipments to China soared 29.00% in value, while exports to the US gained 11.00%.

The overall September trade surplus of JPY 670.20 billion yen ($5.90 billion) compared very favourably with a JPY 486.60 billion figure in the same period last year. However, the surplus was impacted to a degree by rising costs for imports of petroleum, coal and natural gas. Following the report, the EURJPY pair gained ground, reaching a one-week high of 133.430 in overnight trade.


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