One of the reasons given for the modest rally in European stocks today is the Chinese GDP released last night. It had been estimated the quarter's GDP would be down to 7.7%, last year it was 8.1%. The GDP quarterly number came in at 7.6%, almost as good as expected. There were other numbers released for Fixed Asset Investment, Industrial Production, and Retail Sales, and all the numbers came out at minor changes from the guesses.
The quarterly growth rate of 7.6% is the lowest rate since the first quarter of 2009, and down from a growth rate of 8.1% in the first quarter. Rarely do we have fundamental Chinese economic numbers that surprise the market. Is this because the Chinese observers are better guessers? Since the Chinese economy is managed, what are the chances the numbers are, shall we say, massaged?
Accurately measuring activity in a country as large as China is difficult, and manipulation of the numbers only makes it more difficult. A better measurement of the health of the Chinese economy might come from other observations. Some of these come from an article, "10 signs of economic trouble that China's official data won't tell."
Among of the signs they mention, the profits of steelmakers have collapsed, heavy equipment manufacturers are in trouble, slowing of manufacturing has slowed, as has the demand for electricity. This has resulted is a surplus of coal at ports and warehouses. With textile demand slowing, the cotton inventory at the ports has increased. In Macau, the casino revenue growth is reported to be down sharply.
Regarding the currencies, Sprach Analyst reports:
"Chinese Yuan/Renminbi is falling......Without any doubt, this is the sign that the Chinese economy is slowing fast. There are a few dimensions in looking at this issue. First of all, the government would like it to be weakened if the economy slowed. Secondly, trade surplus is trending lower. Thirdly, the nature of capital flow for emerging market is often pro-cycling, meaning that money flows into the country when the economic growth is strong, and reverses when growth stalls. As a result, you now have more selling pressure of Chinese Yuan. Fourth, Chinese companies are short US dollar, thus they have to dump Chinese Yuan when US dollar strength."
Will the end of the business cycle result in a hard landing, or not? The debate continues. Perhaps the Chinese economy will make the transition from exporting to a domestic consumption economy, during the next several years. Despite what Chinese officials are claiming, we and probably they, do not know how this will end.
Should the Chinese have a hard landing after their recent bubble, demand for basic commodities such as iron ore and coal will obviously slow. Naturally the aussie would be hurt since China is their biggest trading partner. In the last COT Report specs in the Aussie futures were about even, so it would not take too many risk-on players to send the aussie back higher.
The US equity markets are firm today, and the euro, after making a new low around 1.2165 is trying to reverse. The specs remain short and bearish so a reversal would grab their attention. Knowing the market is loaded short, Goldman projected the euro is about to rally, with a one year target of 1.40. On the monthly chart the euro is flirting with the 200 month MA at 120.60. Maybe it is due for a rally but on Friday the 13th, some else can trade it.
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