March 4, 2020

European Markets Focused On Strong Chinese Economic Numbers; UK Retail Sales Data Ahead

Chinese Economic Health Improved Or Is it Front-loading factor?

It was the Chinese economic numbers that stimulated the market action over in Asia. The economic data came in line with market expectations. The Chinese GDP q/y matched the forecast of 6.1%  while the fixed asset investment painted a better picture by whipping the forecast of 5.2%. It published a number of 5.4%. Similarly, the Chinese industrial production number also encouraged investors, the reading was 6.9%, above the market expectation of 5.9%.

How much of this has to do with consumers front-loading because of the Chinese Lunar New Year approaching fast is a separate question. Overall, these numbers were noteworthy among traders because they show the resilience of the Chinese economy. In other words, the second-biggest economy in the world can grow despite its tariff war with the US. Remember, earlier in the week, we also saw the import and export numbers beating expectations. Given that the Phase 1 deal is already sealed between the 2 major superpowers, the US and China, we believe a backstop is in place for any further stressful moments — for now — and industrial growth would flourish from here onwards.

What Drove The S&P500 To 3,300 Mark?

Over in the US, the equity markets jumped to another record high, the S&P 500 broke above the 3,300 mark for the first time. The trading action was driven mainly due to strong earnings reports. Morgan Stanley led the markets higher due to its astonishing earnings – all the 3 main businesses: investment management, wealth management, and trading produced better numbers than the previous quarter. But it wasn’t the banking sector only which made the rally, the tech giants Microsoft and Google’s parent Alphabet produce actual flashing headlines. Alphabet market cap topped $1 trillion for the first time while Microsoft touched another record level.     

Europe Influenced By External factors

A solid start of the earnings season in the US and potent economic numbers out of China are going to influence the trading action over in Europe.

Sterling and UK Retail Sales

In the forex market, Sterling’s strength among its peers demands respect. This is especially true if we look at the economic numbers which have been lackluster. Despite this, the currency continued its upward journey for the 3rd consecutive day. Traders are clearly ignoring the threats of a possible rate cut by the Bank of England and they are more focused on the optimistic side. We are speaking of the UK retail sales report. The data is due today and the expectations are for a solid number, 0.5%, against the previous numbers of minus 0.6%. We do believe that even if the actual number matches the expectations, the upward momentum may not last for long because a rate cut is inevitable. We strongly believe that this is the chief agenda on the minds of UK central bankers and it is highly likely that we may see one rate cut during the second quarter. There are many reasons for this such as lack of credit demand, a higher default rate among corporates and a weak UK CPI print.  The statement about a rate cut carries more weight if we start to factor in the recent acknowledgment by the UK’s Prime Minister that the possibility of a deal taking place with the EU is out of the question during this year.