China Confirms Slowdown

Published by Filipe R. Costa on Thu, 09/08/2012 - 10:45
Chinese flag

Daily Market Commentary for August 9: Data coming from China during the night confirms the country is landing, we just don’t know how hard that landing is. Factory output slowed to a multi-year low while inflation seems to be easing.

China’s factory output slowed to 9.2% in July, the weakest level in just over three years and below the 9.8% expected. Retail sales also missed expectations. Luckily, inflations seems to be easing too giving some scope for monetary intervention. The annual rate of inflation is now pointing to 1.8%, down from 2.2% in June. Given the pressure that may come from the soy beans market, that has seen the price spiralling, many economist think this is the best opportunity for the Chinese central bank to take some extra action and try to avoid the hard landing the economy is quickly approaching. In the near future inflation may rise again and reduce the amplitude the central bank now has.

While China is struggling to expand its growth, we are struggling to put any growth at all, in Europe. Austerity measures are hurting all of us while interest rates are rising to who needs them low and dropping to who don’t need them low. Spanish and Italian efforts may be wasted in case these countries aren’t able to see the yields on their government debt reduced. There is a need for intervention from the central bank and at this point even Angela Merkel is aware of this. Although not expecting much during August, I would be prepared for something coming from Europe next September, as needed.

In Japan, the governor of the central bank left monetary policy unchanged but warned on the risks coming from Europe. While he thinks China and the US are not in a really difficult situation, Europe is a risk to global growth. The governor also said the Bank of Japan may react to any further easing coming from the US since it would pressure the yen up and increase the deflationary problem the country has not been able to solve so far.

Yesterday markets ended mixed, losing some steam as a Federal reserve member has stated the current level of monetary easing may be enough, but later the Dow recovered as earnings have been good. Today there is also not much steam inside, as many are out to the beach. Unfortunately I’m not one of those fortunates!

Name Last price Close Price % 5-Day % YTD %
IBEX 35 08/08/2012 7150.2 -0.84 6.4 -16.53
FTSE MIB 08/08/2012 14665.25 0.06 5.29 -2.81
Crude oil (Light Sweet) Composite 08/08/2012 93.27 -0.05 5.1 -5.79
CAC 40 08/08/2012 3438.26 -0.43 3.51 8.81
DAX (Xetra) 08/08/2012 6966.15 -0.03 3.13 18.1
Nasdaq 100 Index 08/08/2012 2714.02 -0.12 2.99 19.15
FTSE 100 08/08/2012 5845.92 0.08 2.33 4.91
S&P 500 08/08/2012 1402.22 0.06 1.96 11.5
Dow Jones Industrial Average 08/08/2012 13175.6 0.05 1.58 7.84
EUR/USD - US$ per Euro 08/08/2012 1.2372 -0.1 1.09 -4.49
GBP/USD - US $ per £ 08/08/2012 1.5665 0.35 0.8 0.87
Gold (LBM) $ 08/08/2012 1613.8 0.09 0.68 2.99
EUR/GBP - £ per Euro 08/08/2012 0.7897 -0.44 0.29 -5.22