Tonight we have the biggest event for Asian markets for the week – probably even for the month!
We are expecting a host of economic data from China, chief among them quarterly GDP. The Asian giant is expected to close out the year just barely within official projections.
Despite downward pressure from many factors, officially, the Chinese economy continues to grow. This could help support other far east currencies.
Following the release of a barrage of economic data, including Industrial Production and Retail Sales, the Chinese National Bureau of Statistics will host a press conference. The comments from there can also move the market.
Therefore, the Asian session can be quite volatile. Analysts will be keen to hear the latest official projections for economic growth during 2020.
What We Are Looking For
The star of the event will be, as mentioned, quarterly GDP figures. The consensus of expectations is that China’s economy grew by 1.4% in the fourth quarter.
This would be just a slight slowing of the pace from 1.5% in the third. A result like this would imply an annual GDP growth rate of 6.0%, at the very bottom of the government’s projection range.
6.0% would be slower than during the middle of the 2009 crisis, and we’d have to go all the way back to 1992 to find a growth rate that low. However, the perception seems to be focused on going forward, with a more optimistic outlook.
Still Paying Attention to Drama
The primary reason most economists give for poor growth in China is the trade conflict with the US.
With the world’s two largest economies finally, officially signing a Phase 1 agreement, the outlook has turned positive. Poor economic indicators from China are being termed “last year’s news”.
China’s currency has been strengthening since September in the lead up to the latest round of trade negotiations and following record stimulus spending by the Chinese government.
Increased purchasing power might help fuel Chinese shopping sprees. This, in turn, would support exports from Japan, Australia, and New Zealand.
So, How Good?
Despite all the fanfare regarding the potential of the Phase 1 deal, there isn’t much consensus on what it means in terms of real impact on China’s economy.
It’s a step towards normalizing trade relations between the US and China. However, it is by no means a return to the situation in early 2017, when the Chinese economy was already starting to show some slack despite no trade issues.
As the measures of the agreement are implemented, we’ll get a better view of whether optimism among investors has gotten ahead of reality. Other emerging markets might find themselves benefiting more from the climate of easing trade tensions and more risk appetite than China.
Over the next few weeks, it will be interesting to review corporate reports from Chinese firms regarding their capital investment plans.
Also, we’ll have to see whether US firms plan to ramp up purchases from China. They might communicate this in their fourth-quarter reports over the next month.