After three weeks of rallies on Wall Street, and the recovery in global risk appetite that went with it, markets open the week with the release of Chinese 3rd quarter GDP.
Already there is speculation that the Chinese Communist Party (CCP) might be about to downgrade its economic forecasts at its 5th plenary session at the end of the month.
But traders need to get Monday’s GDP out of the way first. Westpac says the market’s forecast is 6.8%. with a range of 6.4% to 6.9%. That 6.8% is only slightly below the CCP’s stated 7% growth target for China this year. Westpac itself is expecting a print showing annual growth of 6.8%.
Perhaps then the outcome won’t be too worrying for markets but a chart in Westpac’s Weekly preview highlights the weakening trend in Chinese growth is well entrenched.
The release of GDP, at 1pm ADST, Monday, on its own is huge. Add in the fact that Chinese retail sales (market expectation +10.8%), urban investment (+10.8% expected), and industrial production (+6% expected) and we have a raft of important data which will set the tone for the week ahead. That’s particularly so for the Aussie dollar and commodities, so linked to Chinese growth, or at least expectations of it.
But China, concerns about its growth, impact on emerging markets, and “conditions abroad” have been at the heart of global stock market ructions, so traders the world over will be watching.
That huge start to the week contradicts the fact that the third week of the month is usually reasonably quiet.
Certainly that’s the case in Australia, where the major events are the release of the RBA’s board minutes on Tuesday and the larger, quarterly, NAB business survey on Thursday.
In its What to Watch, released Friday the NAB’s economics team said they will be, “paying particular attention to the capex expectations, and what this may mean for a prospective recovery in non-mining investment – which remains the missing piece in the RBA’s transition story to non-mining led growth.”
They say the relationship between the Quarterly Survey measure of capex expectations for the 12 months ahead “has a fairly close relationship with actual investment and is currently pointing to an increase of around 5% in annual terms.” That sounds positive. But the NAB says, suggests only “a timid recovery in non-mining investment”.
Also out in Australia is the Westpac-Melbourne Institute leading indicator of economic growth on Wednesday.
Looking offshore there is a dairy auction in New Zealand on Wednesday is important for the New Zealand dollar. But, as the RBA pointed out on Friday it’s also important for the Australian banking sector.
Elsewhere Japan releases trade data on Wednesday, while the Nomura/JMMA manufacturing PMI is out Friday.
In the US the NAB says “activity indicators take prominence” with the release of the Chicago Fed and Conference Board Indexes Thursday and the Markit PMI Friday. It’s also another week where the Fed will air its linen in public again with a number of speakers. The NAB says Dudley and Powell on Tuesday are the likely highlight.
Indeed because of the confusion as to what the Fed will do and is thinking almost every speech at the moment is an event risk for traders. That’s important because traders and investors like to think they have a good handle on what is going on but Credit Suiise released a note Friday saying, “we’ve never had so many clients who just do not know what is happening”
What the price action tells us, and what Credit Suisse describes, is that having broken lower stocks and other risk assets persuaded traders and investors there was a big risk of a huge fall. Here we are now with risk back “on” and stocks looking like they might break higher. As a trader for more than a quarter century I reckon the price action has been a perfect replication of what we’ve seen so many times in so many different markets, or so many timeframes. But I get it because the big question I’m also asking is, what’s next. And not just for stocks.
Here’s the S&P 500 chart:
In Europe Germany releases producer prices on Tuesday, EU trade is out as well. UK retail sales are out and huge on Thursday. Also out Thursday is the ECB monetary policy decision and press conference. Will Draghi hint at more QE?
It’s a big week considering how quiet it is supposed to be. Here’s the NAB’s excellent calendar of all the data and events that matter.