Chinese Growth Fears Resurface

Daily Analysis - 06/03/2017

China Sets Lowest GDP Target in 25 years

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China has set its sights on the lowest growth target in 25 years, forecasting GDP to increase by 6.50% in 2017, further reinforcing the challenges that lie on road to its recovery. Economic expectations have been on a steady decline in the world’ most populous country, with China setting a GDP expansion target of 6.50% to 7.00% in 2016 after reaching 7.00% in 2015 and 7.50% in 2014.

Chinese Economic Activity Plateaus


A surge in Chinese lending and increased public spending over the past few quarter have fuelled concerns about the sustainability of such high levels of debt. As the communist regime tries to shift the economy from manufacturing-led growth, Beijing will be immediately faced with the Herculean task of creating employment opportunities for the millions who are entering the job market.

China will create 11 million new urban jobs this year according to Premier Li Keqiang during his presentation of China’s budgetary proposals delivered on Sunday. However, that may fall well short of the 15 million new workers that economists estimate will enter the market. Although USDCNH is trading well below its December peak, the pair is currently perched close to the strong resistance around the 6.9100-mark after retreating at the weekly reopening.

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Oil Inventories Responding to Production Cuts


Oil inventories are responding to OPEC-led production cuts, the cartel’s secretary general said on Sunday. “Inventories are responding if you look at both offshore and onshore," Mohammad Barkindo said on the sidelines of an energy conference in Houston. The output cuts, which were approved in November and took effect on January 1st, have so far pushed global oil prices up by close to 10.00%.

Oil investors will be looking for fresh cues from Barkindo and oil ministers from Russia, Saudi Arabia and Iraq on whether OPEC plans to extend the production cut agreement beyond the originally proposed 6 month duration. Hedge funds seem to think any extension is unlikely, which would explain the latest data that shows they have cut back on their bullish bets. Brent crude futures have been stuck in tight trading range over the past few weeks, and are currently trading just over $55.50 per barrel.

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UK Manufacturing Orders Surge


Factories in the UK are growing at their fastest pace in over three years, buoyed by the drop in value of the Pound in the aftermath of the “Brexit” vote, a leading survey showed Monday. Data from a poll conducted jointly by manufacturing lobby group EEF and consultancy firm BDO showed the balance of firms reporting first quarter growth rose to 31.00% - the highest since the third quarter of 2013.

The survey results should come as a relief to “Brexit” supporters, who had said that a growth spurt in British factories would be one of the early benefits of withdrawing from the European Union. The EEF also upped its manufacturing growth forecast to 1.00% this year, compared to the prior expectation of a 0.20% contraction. GBPUSD is just below strong resistance around 1.2279 in early Monday trade.

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Australian Retail Activity Bounces Back


Data released by the Australian Bureau of Statistics earlier showed that retail sales in the country rebounded in January after two consecutive months of weak figures. Retail rose by 0.40% in January, matching analysts’ estimates while displaying a marked improvement from the 0.10% dip recorded back in December.

The latest figures are significant given the retail sector is the country's second-biggest employer, and could have a positive ripple effect across the economy.  The bounce should also come as a relief to the Reserve Bank of Australia, given it was an uptick in household consumption that helped the domestic economy “duck” a recession during the fourth quarter. After reversing from the highs of Friday, AUDUSD is mounting a comeback and is hovering around 0.7580.

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