China GDP report leaves markets mixed
A sense of unease rippled across the global markets in the early hours of this morning following the announcement of China’s Q1 GDP figure of 6.7% which was the slowest quarterly growth the nation has witnessed since the first quarter of 2009. Although the GDP was strikingly in line with estimates, this undoubtedly compounded with the backlog of tepid data from China that has intensified the mounting anxieties around a deceleration in the world’s second largest economy. Sentiment remains bearish towards China and with economic growth on a slippery decline as the nation transitions into a service-led economy; expectations may mount over the possibility of Beijing unleashing aggressive stimulus measures in a bid to attain stability.
Stock markets on standby
Asian equities were mixed this morning following the China GDP announcement with the Shanghai Composite Index trading -0.22% lower as investors pondered the likelihood of additional stimulus measures by Beijing. Despite this mixed reaction in Asia, the horrible combination of risk aversion and anxieties ahead of the Doha meeting on Sunday are weighing on investor sentiment and this may eventually drag Asia lower as the trading day concludes. Although Europe and America displayed resilience earlier this week, the amalgamation of China concerns and potential declines in oil prices could produce a bearish domino that encourages investors to scatter away from riskier assets consequently punishing both trading Arenas.
Eurozone and inflation
The Eurozone has been engaged in a losing battle with stubbornly low inflation levels for an extended period while static economic growth in Europe has left the European Central Bank under immense pressure to act again. Declining commodity prices and diminishing global growth continue to sabotage the ECB’s 2% inflation target with the central bank potentially slashing inflation forecasts once again as market participants lose faith in the ability of policy makers. Although Eurozone inflation was revised to 0% in March, sentiment continues to be bearish towards Europe and the IMF’s downgrade of Eurozone growth simply adds insult to injury. It seems quite likely that the European Central Bank could unleash further aggressive stimulus measures in the next major meeting in a fighting attempt to revive Eurozone growth while also weakening the Euro.
Crude Oil on standby
WTI Crude may have entered a standby phase ahead of the anticipated and potentially monumental Doha meeting on Sunday. The ongoing chit chatter from major oil producers on production freezes has ensured oil prices remained buoyed this trading week with optimism growing for a potential deal to be struck. While this may be the case, the logic behind the deal is thought provoking in many dimensions as even if the output was frozen near the record highs, the markets would still be oversupplied by 2mbpd. When taking into consideration Iran’s quest to pump output in a bid to regain lost market share, many questions could be raised about the effectiveness of this Doha deal. Regardless, sentiment towards WTI remains bearish and further declines could be the recurrent theme, especially if Sunday leaves investors empty handed. From a technical standpoint, a decline back below $38 could open a path towards $35 and potentially lower.
Commodity spotlight – Gold
Gold has had a painful week of declines as the combination of rising oil prices, improved risk appetite and diminishing interest in safe haven investments offered an opportunity for sellers to attack. Prices have sunk by more than $30 but this yellow metal remains bullish and the mounting concerns over slowing global growth should offer a platform for bullish investors to install another heavy round of buying. Dollar weakness may continue to be the theme in the global currency markets while the fading expectations over the Fed raising US rates this quarter should keep Gold buoyed. Although this current correction is trading dangerously closer to the $1200 mark, bullish investors could exploit this decline to pile on the longs, consequently sending Gold back towards $1250.