Chinese GDP figure well below expectation

13 April 2012  •  Source: Richard Driver, CaxtonFX

The first quarter Chinese GDP figure came in last night well below expectations at 8.1% (q/y), which is the weakest showing in almost three years (though clearly still streaks ahead of other global economies). Despite rumours of a surprisingly strong figure, the markets actually handled the news pretty well and risky assets avoided a sell-off.

Today’s session brings some inflation and consumer sentiment data from the US, while Fed Chairman Ben Bernanke signs off the week with a speech.

STERLING/EURO: A broadly successful Italian debt auction gave the euro a minor lift on Thursday.

• €5bn of Italian debt was auctioned off yesterday and 10-year yields have declined back to 5.40%, whilst Spain’s equivalent yields also eased somewhat to 5.81%. There was also some slightly more encouraging news from the eurozone in the form of some stronger industrial production growth data.

• Sterling is trading at the €1.21 mark this morning and we may well see a bounce today as eurozone contagion worries are far from being put on the back-burner.

STERLING/US DOLLAR: Sterling is trading at $1.5950 this morning, helped by further advances in global stocks.

• Confidence and risk appetite built on Wednesday’s bounce yesterday, helped by some narrowing in eurozone bond spreads. There were further dovish comments from US Federal Reserve speaks yesterday, who reminded the market that the US is not out of the woods yet. Bernanke is likely to reiterate this position tonight. QE3 hopes remain very much on the table then and with this, the dollar is on the back foot.

• Recent data from the UK has made further QE from the BoE less likely (though much like in the US, the BoE is prepared to act if conditions deteriorate). Sterling is trading at $1.5950 this morning and gains may be increasingly hard to come by.

EURO/US DOLLAR: Despite increased focus on eurozone debt, the euro marched higher against a softer dollar.

• Comments from the US Federal Reserve are pegging the US dollar back at present, which again were not helped by last week’s poor US jobs figure. Still, one poor figure does not signal a change in trend; if US data resumes its uptrend then the market will once again begin pricing out the probability of further QE from the Fed.

• This pair has recovered some of its early-April losses but we continue to look for levels below $1.30 on the downside. This pair is trading at $1.3150 and US consumer confidence data may give the dollar some support today.

STERLING/AUSTRALIAN DOLLAR: This pair continues to trade at 1.5350, with poor Chinese GDP data helping sterling to recover some losses.

• Risk appetite strengthened further yesterday, which saw real demand for the aussie dollar yesterday. However, the poor Chinese GDP figure saw sterling recover lost ground. The Chinese economy grew at an annualised pace of 8.1% in Q1 2012, well below expectations of an 8.4% figure and indeed the previous quarter’s 8.9% showing.

• Sterling is still trading at 1.5350 and positive risk sentiment looks likely to obstruct further sterling gains.

STERLING/NEW ZEALAND DOLLAR: The kiwi dollar is trading very impressively regardless of weaker Chinese growth.

• The New Zealand dollar was spared a sell-off in response to last night’s poor Chinese GDP figure, instead making a two cent gain over the pound. The Chinese growth figure will not be taken as all bad by some traders. Whilst China is NZ’s second-largest trading partner and poor growth does mean diminished demand for NZ exports, the disappointing Chinese data does make monetary easing from the People’s Bank of China more likely, which should boost growth moving forward.

• Sterling is trading down at 1.92 against a strong kiwi dollar, though we should see support levels kick in for this pair today.

STERLING/CANADIAN DOLLAR: Canadian trade balance data was poor but Fed comments lend the loonie a helping hand.

• Canada’s trade balance came in well below expectations, positing only a marginal surplus of 0.3B. However, comments from the Fed yesterday supported the outlook that US interest rates will remain at record-lows until late 2014. Risky assets such as US stocks and commodity linked currencies rallied as a result of this, which dragged this pair lower.

• Sterling is trading at 1.5850 this morning and improved risk appetite should remain supportive of the loonie.

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