China's slew of economic data lends
credence to ideas that the world's second-largest
economy may be stabilizing. However, the data failed to have a wider impact on the global capital markets,
including supporting Chinese equities. In fact, the seven-day
advance in the MSCI Asia-Pacific Index was snapped with a fractional loss
today. European shares are also lower on profit-taking, breaking a five-day
advance. Commodities, including oil, copper, nickel and zinc are also
trading off.
However, in the foreign exchange market, the Chinese data appeared to
help lift the dollar-bloc currencies, and the currencies of some of China's
largest Asian trading partners, like the Korean won (+0.9% and the Taiwanese
dollar (+0.25%). More broadly, the greenback is
consolidating this week's gains against the euro, Swiss franc, and the
yen. Sterling is a little firmer (0.2%), which is essentially this week's
advance.
In an otherwise light news session, Chinese economic data are the
highlight. Although growth slipped to 6.7%, the slowest in seven
years, it is the middle of this year's 6.5%-7.0% target, and the other reports
were better than expected. This includes
a 6.8% rise in March industrial output, nearly one percentage point higher than
the Bloomberg median. Retail sales rose 10.5%, also a little better than
expected. Fixed asset investment rose 10.7% compared with a median forecast of 10.4%.
Perhaps the subdued market reaction derives not just from a jaundiced eye
cast upon the veracity of Chinese economic reports, but also by the sense the
figures, even if accurate are not sustainable. For example, despite
the glut, Chinese steel output rose to a new record high in March. In addition, the price of the better economic
activity was a surge in debt. New yuan loans jumped CNY1.37 trillion,
nearly a quarter more than expected and well above six and 12-month
averages. The broader measure that covers overall lending
(including by the shadow banking sector) soared CNY2.34 trillion, nearly 70%
more than the median forecast.
There were two economic reports in Europe to note. First,
consistent with the Bank of England's recognition that the UK economy has lost
some momentum in Q1, February construction spending unexpectedly fell
0.3%. The median guesstimate was for a flat report. Adding insult
to injury the decline in the January series was double to 0.4% from -0.2%
initially reported. There was little
market reaction.
The eurozone reported a smaller
than expected February trade surplus of 20.2 bln euros. This was about 1.3 bln euros smaller than expected but was offset by a 1.6 bln upward
revision to the January surplus, lifting it to 22.8 bln euros. Here too
the market reaction was minimal.
The dollar initially rose to almost JPY109.75 in Asia but was subsequently sold to new session lows in the European
morning near JPY109. Nevertheless, the greenback is holding on to
about a 1% gain this week, the first in three weeks. The yen's modest
pullback this week was sufficient to prompt the BOJ's Kuroda to suggest that
the recent excessive yen strength has been "somewhat corrected."
Contrary to the currency war meme, we have argued the bar to Japanese
intervention was higher than met by current conditions. Despite
elevated rhetoric by some Japanese officials, we see in Kuroda's comments
support for our contention that intervention, even after the G20 meetings
around the IMF/World Bank meetings, remains unlikely.
Japan
was struck by the most powerful earthquake since 2011. All of the industrial sectors in the Topix
fell except telecoms, which eked out a small gain. Typically, one would look for construction companies
to outperform and insurance companies to underperform in response. The Topix rose 5.7% this week, which is the
second best weekly performance this year after a nearly 8% gain in the middle
of February (which followed a 12.6% decline in the previous week).
The North American session features
the April Empire State manufacturing survey.
The March reading was the among the first data points to suggest the
manufacturing sector was improving after a nearly year-long slump. More
improvement is expected. The government’s March industrial production and
manufacturing output will also be reported. The University of Michigan’s consumer
sentiment measure, and perhaps more importantly, its survey of inflation
expectations will also be reported. The February TIC data will be reported after the markets close.
Separately,
we will be looking for the NY Fed’s update of
its new GDP tracker and the latest US rig count. This weekend OPEC and non-OPEC
meeting in Doha to ostensibly discuss a freeze appears to have been largely
discounted. The IEA warned this week
that a freeze without output cuts would have a little meaningful impact in the
already oversupplied market. News this
week indicated that US output fell below nine mln barrels a day for the first
time in 17 months was blunted by the fact that crude inventories rose by more
than six mln barrels.
Disclaimer
Better Chinese Data Fails to Deter Pre-Weekend Profit-Taking
Reviewed by Marc Chandler
on
April 15, 2016
Rating: