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To be honest, there is nothing to be enthusiastic about in the meagre 6.9%y/y GDP growth in China, when a rate of 6.8%y/y was expected. The fact is that China grew at the slowest rate since 2009 in the year to September.
Chinese GDP presently treads below the 7% hurdle and the trend is clearly to the south. Industrial production slowed to 6.2%y/y from 6.3%y/y in September seasonally adjusted, retail sales expanded steadily at the pace of 10.5%y/y. Data also showed that the fixed asset investment, excluding rural areas, decelerated to 10.3%y/y from 10.9%y/y a month ago. Chinese equity markets and commodities sold-off.
FTSE stocks made a greenish start to the week. With the exception of the miners, all sectors opened in positive territory. Rio Tinto (-1.62%), BHP (-1.86%), Anglo America (-4.34%) and Glencore (-3.02%) are among the leading losers.
As the copper market gives toppish signs before $2.45/lb, and the upside is clearly less appealing after the Chinese data, investors will remain sceptical in entering the commodity stocks. The limited upside potential in the commodity market is a major issue for Glencore, which saw its adjusted EPS estimate for 2015 tumbling by a significant 28.32% over the past four weeks. And we cannot blame investors. The company announced a very tight revenue margin of 2% in the first half of the year, compared to Anglo American’s 16%. Given the companies’ high exposure to commodity prices, the improvement in copper and coal prices in particular is needed to improve Glencore’s revenue margins. And there is not a single spark on this direction yet. From a competitive point of view, Glencore is still seen as the weakest link among the UK’s miners. Hence, convincing investors to lend support on business restructuring plans and debt consolidation remains a severe task.
Increased pressure in the euro before the ECB meeting.
It is going to be a euro week. There is something happening in the euro market. Even though traders fail to put a finger on it, the ECB may have a plan this week. Or at least the market thinks they might. On Friday, we have seen a significant rise in Eurozone sovereign bond demand; German 10-year yields fell to 0.540% while the core-periphery spread remained steady. In the money market, Euribor interest rate futures rose on the expectation that the ECB may leave the QE unchanged yet pulled the deposit rates lower into the negative territory. While such expectations should keep the EUR-bulls on the sidelines, it is worth noting that the improvement in the inflation suggests that the ECB may simply not move. The appreciation in euro is unpleasant, yet an additional cut in deposit rate, which is already negative, could interfere with the positive trend that seems to be building in inflation dynamics. Would the ECB risk a liquidity trap just to counterweight the euro strength? ECB’s Coeur said on Friday that he is worried about a very high expectation on the ECB. Indeed, we could be at a point where if the ECB refrains from loosening, the EURUSD could see another bump in demand and surge back to 1.15 mark and could even build up some ambition for 1.20.