Chinese GDP Growth Shows Signs of Optimism

Weekly Report - 23/10/2016

Growth in Second Largest Economy Matches Expectations as Inflation Rebounds in Industrialized Nations


Despite significant headwinds, the Chinese economy matched both quarterly and annualized growth forecasts, reducing the level of anxiety among investors and analysts after disappointing trade figures.  While optimism spread globally, the uptick in inflation figures in advanced economies was also cause for optimism, with Euro Area, UK, and US inflation all accelerating to the upside.

Last Week

After weaker than expected trade figures, growth targets set by China’s central planners were hit in the latest GDP release.  Quarterly growth was recorded at 1.80% with annualized expansion pegged at 6.70%.  While industrial production was slightly weaker, retail sales and fixed asset investment continue to tick higher on an annualized basis.  The major move was in the offshore Yuan which fell to a record low versus the US dollar. Meanwhile, accommodative policy measures are paying dividends for other countries and regions, with Euro Area consumer prices rising at the fastest pace since October of 2014 while UK inflation is trending at the highest levels last seen in November of the same year.  Meanwhile, headline CPI in the United States climbing to heights experienced around the same period in 2014 is giving further credence to the idea of a 2016 rate hike, likely in December.  This renewed confidence saw the US dollar continue to rise for a third straight week, increasing to levels reached back in January.  Helping this climb was substantial weakness in the Euro which fell after the ECB announced it was planning no tapering before the expiration of its current asset purchase program.


The Week Ahead

For the coming sessions, the main drivers of market momentum will be the advance readings of gross domestic production alongside inflation data from advanced economies.  The week kicks off with trade data from Japan which will likely show a continued slide in exports as the import contraction narrows modestly.  The main events are GDP figures from the United Kingdom and United States with the former expected to see quarterly GDP growth to taper to 0.30% from 0.70% the prior while the latter is forecast to accelerate to 2.50% from 1.40%.  Equivalent data will be released from France and Spain, with French growth anticipated to climb back into positive territory while Spanish expansion decelerates.  Besides the GDP figures are inflation figures from economies across the globe including Japan, Australia, Germany, Spain, and France.  While most CPI releases are forecast to show consumer prices bouncing back across the board after extreme accommodation was undertaken, Japan may remain mired in deflation with core consumer inflation likely to remain firmly in negative territory.  Durable goods data and housing numbers data from the United States will round out the week, being especially important if the housing sector continues to experience uneven growth.


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