Reviewing Chinese Data: Signs of Stabilization

Jan 20, 2:01 pm
Bank of China_Chinese data

After the ECB decision and the US economic releases during yesterday’s trading, which had a notable impact on the markets. Another set of economic figures were released from China, which also led to another wave of volatility until this report is released. In today’s article, we will take a look at the Chinese figures, explain the impact and what do they mean for the PBoC.

Outcomes

Indicator

Actual

Forecast

Prior

GDP

6.8%

6.7%

6.7%

Industrial Production

6.0%

6.1%

6.2%

Fixed Asset Investment

8.1%

8.3%

8.3%

Retail Sales

10.9%

10.7%

10.8%

The Chinese figures were mixed, but some are showing some signs of stabilization, the GDP in China has been slowing down since 2010, declining from 12% all the way to 6.7%. For the past three quarters, the GDP stabilized at 6.7%, while last quarter it actually advanced to 6.8% which is the highest growth rate in 2016.

The GDP is the change in the inflation-adjusted value of all goods and services produced by the economy. Data represents the quarterly value compared to the same quarter a year earlier. Chinese data can have a broad impact on the currency markets due to China's influence on the global economy and investor sentiment.

Despite the GDP growth, the Industrial Production and the Fixed asset investment slowed down too, posting the lowest growth rate in 2016.

The fixed asset investment is the change in the total spending on non-rural capital investments such as factories, roads, power grids, and property. It's a leading indicator of economic health - changes in private and public investment levels can be an early signal of future economic activity such as hiring, spending, and earnings

As for the Industrial Production, it did slow down more than expected, posting the lowest level since March of last year. The Industrial Production is the change in the total inflation-adjusted value of output produced by manufacturers, mines, and utilities. It's a leading indicator of economic health - production is the dominant driver of the economy and reacts quickly to ups and downs in the business cycle.

The Good News is that the retail sales advanced by more than expected, posting the highest reading since December of 2015 rising by 10.9%, which is a good indication on the short term as retail sales are the change in the total value of sales at the retail level. Yet, it tends to have a muted impact because the Chinese economy is not heavily reliant on consumer spending.

What Does It Mean For PBOC

For the past few months, the PBoC was on wait and see mode until today, despite the fact that the economic releases weren’t that great. Yet, all eyes were on the Federal Reserve decision in December ahead of the Chinese new year on 28th of January.

However, the Chinese authorities are trying to stop cash outflows, while they are trying to flood the economy with liquidity almost on a daily basis. Moreover, with the new years ahead of us, injecting larger liquidity is more likely since some of the data is weaker than expected.

Chinese Yuan Eyeing 7.0

The Chinese Yuan weakened further since the beginning of the year, and broke above 6.9 barrier and almost touched the 7.0 barrier. However, Donald Trump’s remarks earlier this week about the US Dollar, saying “Its too strong and its killing us” has led to a notable decline in the US Dollar across the board including the Chinese Yuan, CNH is now back to 6.85. Yet, the 7.0 is still not far away and likely to be seen in the next couple of months. However, the US will not be pleased with such level and currency wars

However, the US will not be pleased with such level, and currency wars are likely to emerge once again, but this time it would be far worse than before since Donald Trump is in the White House Now.

 
Nour Eldeen Al-Hammoury

Nour Eldeen Al-Hammoury has more than ten years of experience in focusing on foreign exchange and global economic developments, as well as central bank policies and intermarket analysis (global markets relationships). Nour Eldeen is a regular on many major TV networks (several times each) such as: BBC Radio, BBC World News, Al-Jazeera, Al-Hurra TV CNBC Europe, CNBC Asia, CNBC Arabia, Al Arabiya, Bloomberg, Russia Today, Dubai TV, Sama Dubai, Skynews Arabia, Qatar TV and Future TV News.