Mixed data from China ends with positive market reaction
In this article we look at the recent stimulus, trade balance and GDP data out of China and how local index is reacting to the news.
Its been a busy week for China with a plethora of data out to influence Asian markets.
PBOC moves to increase credit growth
The People's Bank of China (PBOC) has lowered the country’s reserve requirement ratio (RRR) rate by 50 basis points (0.5%). The lower RRR rate provides further liquidity to the banking sector in China and is an attempt to further stimulate credit growth within the region.
The rate cut is effective as of the 15 July and is expected to inject more than $150 billion into the Chinese economy. The move to surprise markets with easing measures perhaps a suggestion that policymakers are concerned about the pace of recovery.
China’s trade surplus larger than expected
Balance of trade data from China has come in well ahead of consensus, with exports having surged 32.2% year on year (YoY), and imports gaining 36.7% YoY (in dollar terms) for the month of June. The net effect sees China with a trade surplus of $51.53 billion last month.
The strong trade data highlights increasing demand from the world’s second largest economy, while easing restrictions and vaccine rollouts see developed economies increasing their activity as well.
Chinese GDP a slight miss, but still robust
Second quarter gross domestic product (GDP) data showed economic growth of 7.9% YoY. The figure was slightly below consensus estimates which had predicted 8% growth over the period. Quarter on quarter growth (q/q) between quarter one (Q1) and quarter two (Q2) was realized at 1.3%.
China was the only economy to have maintained a positive annualize GDP figure for 2020, and the current year’s growth data highlights a robustness within the world’s second largest economy. Consensus estimates (from Refinitiv data) now predict more than 8% GDP growth for the region in 2021.
China A50 – technical analysis
The China A50 cash index has reacted positively to the Q2 GDP news rebounding of the 16490 support level. Circled blue we see that the price has formed a bullish reversal pattern (bullish engulfing) off this support level. The price reversal is given further validation by the oversold signal on the Stochastic oscillator.
These signals suggest a further rebound for the index with 17130 the initial upside target. A break of this level would further target the next level of resistance considered at the 17735 level. Traders who are long consider using a close below 16490 as a stop loss indication for the trade.
Summary
- The PBOC has moved to increase liquidity and improve credit growth in China
- Balance of trade data shows increased economic activity, particularly in developed markets
- China on track to deliver economic growth in excess of 8% in 2021
- The China A50 Cash Index has formed a bullish price reversal off support suggestive of a near-term rebound
IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.
The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.
No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk. Please see important Research Disclaimer.
Please also note that the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.
Take a position on indices
Deal on the world’s major stock indices today.
- Trade the lowest Wall Street spreads on the market
- 1-point spread on the FTSE 100 and Germany 40
- The only provider to offer 24-hour pricing
Live prices on most popular markets
- Forex
- Shares
- Indices
See more forex live prices
See more shares live prices
Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.
See more indices live prices
Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.