Intraday Market Thoughts

Chinese GDP Beats Expectations, UK CPI Slows, Spanish Bills and ZEW on Tap

by Adam Button
Jan 17, 2012 9:39

The Chinese economy grew at the slowest pace in more than two years in Q4 but GDP figures beat expectations, sending risk trades higher. EUR and AUD are the early leaders with USD and JPY trailing. In Europe, Spain will face its first post-downgrade borrowing test.

Chinese GDP expanded 8.9% y/y in Q4 compared to the 8.7% the market was expecting. Industrial production and retail sales also beat expectations. UK Dec CPI at 4.2%, biggest slowdown since April 2009. German ZEW next.

Markets reacted positively to better growth but the strong readings, combined with higher-than-expected CPI last week, cast doubt that the PBOC will cut reserve requirements before the Lunar New Year holidays begin next Monday. The uncertainty may cap AUD gains in the near term.

Another number to watch comes at 0830 GMT when the ECB publishes daily overnight deposit data. The E492B at the ECB in yesterdays report was a record. Although Draghi dismissed concerns yesterday, the market will continue to take notice of a half-trillion dollars sitting idle.

Also watch out when the Baltic Dry Index is published. It has collapsed since late December and is likely to fall to a three-year low, which could spark some headline selling of commodity currencies.

The key event of the session is a Spanish bill sale. The Spanish Treasury will look to replicate Frances successful post-downgrade auction on Monday. The target for the 12 and 18-month funding is 5-billion euros. The market is priced around 200 basis points below the mid-December sale.

If the bill sales are successful, the market will price in successful bond auctions on Thursday and the euro is likely to recoup much of its downgrade-induced fall. The caveat is Portugal, where 10-year borrowing rates exploded to 14.4% on Monday. A geography professor may say otherwise, but at this point, Portugal is much closer to Greece than to Spain.

UK CPI rose 4.2% y/y from after 4.8% in Nov, in line with median forecasts. It was the biggest slowdown since April 2009. AT 10 am GMT, BOEs King is scheduled to deliver a speech.

Also at 1000 GMT, the Eurozone CPI is expected to slip to 2.8% from 3.0%. More importantly will be the release of ZEW business sentiment data. The German economic sentiment index is expected to improve to -49.1 from -53.8. These minor improvements in sentiment data prompted the ECB an optimistic note from Draghi after last weeks ECB rate decision.


Latest IMTs