There have been quite a few economic reports released over the past three trading days which painted an economic picture in China which is not reflected in many asset prices. Despite lackluster economic data traders have for the biggest part decided to ignore red flags and pushed asset prices higher. The most recent correction in many equity markets could be the first serious test to this Bull Run and may decide the direction for the rest of the year.
The Chinese government has continued to reign in money flow which was evident in this week’s money supply data. M0 was reported at 5.2% which missed estimates of 7.0%. M1 was reported at 5.4% which missed estimates for 6.5%. M2 was reported at 12.1% which missed estimates of 13.0%.
GDP growth in China was the lowest in 18 months and came in at 7.4%. This is slightly below the Chinese government’s target of 7.5%. Estimates called for GDP growth of 7.3%, but despite the slightly better reading it was a GDP figure weak enough to spark wider concern about the strength of the Chinese economy. A weaker Chinese economy indirectly impacts the Australian Dollar, Canadian Dollar as well as New Zealand Dollar and to a lesser extend the Japanese Yen.
Industrial production in China was also reported weaker than expected. March industrial production was reported at 8.7% while estimates called for an increase of 8.8%. The minor bright spot came in the form of retail sales which at 12.0% beat estimates for a gain of 11.9%. Exports plunged for a second consecutive month in March which may be the biggest concern out of China. February’s contraction of 18.1% was followed in March with a 6.6% contraction. Imports plunged 11.3%.
The inflation picture in China continues to diverge with the Chinese Producer Price Index contracting 2.3% on an annualized level while the Chinese Consumer Price Index rose 2.4%. Overall the economic picture in China is mixed at best, but the majority of traders have ignored economic developments and pushed commodity currencies higher. Forex traders should be prepared for a bigger correction in the AUDUSD, CADUSD, NZDUSD and USDJPY.