Daily Market Reports | Jan 21 2014
By Greg Peel
Wall Street was closed last night for Martin Luther King Jr Day.
China’s December quarter GDP, released yesterday, came in at 7.7% year on year growth, down from 7.8% in September and slightly ahead of 7.6% consensus forecasts.
Data for the month of December showed retail sales growth of 13.6% year on year, in line with forecasts, and industrial production growth of 9.7%, just missing 9.8% forecasts. Fixed asset investment eased to 19.6% for the year to December from 19.9% for the year to November. FAI in 2012 was 20.7%.
China’s pace of growth is slowing once more, in line with analyst expectations. As investment slows, and Beijing continues to wrestle with excessive debt and unregulated shadow banking, hopes of the government being able to deliver both strong growth and structural reforms simultaneously seem optimistic. The good news in the numbers is that the bulk of GDP growth was for the first time delivered by the services sector and not by the manufacturing and construction sectors which drove the country’s “emergence” in the twenty-first century. This means China is less beholden to the economic fortunes of its trading partners, and signifies a shift towards a more self-supporting domestic economy, as is Beijing’s wish.
The upshot is that while China may still be selling knock-off fridges to the West, the real growth will be in selling knock-off fridges to a domestic population which is growing ever more middle class by the month. Predictions that China will eventually surpass the US as the largest economy in the world are simply a measure of 1.2 billion versus 300 million. Structural reforms are nevertheless vital to ensure China’s banking system does not implode in the meantime, but from Australia’s point of view, slower growth is not an issue as long as that growth still requires large volumes of raw materials.
Consensus forecasts at this stage have China’s GDP growing by 7.4% in 2014, the slowest pace in 25 years.
On the subject of China, spot iron ore yesterday fell by US$2.50 to US$124.80/lb. It sounds a bit ominous, given daily price drops seem to have been accelerating recently, but we must take account for the Chinese New Year holiday which runs from January 29 for a week. Every year this lengthy break distorts activity and data, given everyone rushes to get things done beforehand and then everything goes quiet. Chinese steel mills are well stocked with iron ore, so presumably purchases have dried up for now ahead of the shutdown. After a shutdown, well that can be a different story.
With US markets closed, activity was largely quiet across the globe last night as is usually the case. The US dollar index slipped 0.1% to 81.07 and the Aussie has crept back 0.3% to US$0.8802. Gold is steady at US$1254.10/oz.
Base metals were mostly marginally weaker, although aluminium gave back 0.8% of Friday’s gains. Brent and West Texas crudes both rose slightly to US$106.63/bbl and US$94.37/bbl respectively.
Stock markets in Europe were a little weaker. Deutsche Bank shares fell 4% in Germany after the investment bank announced an unexpected December quarter loss, driven by weak investment bank results, the cost of strengthening its balance sheet and a lump of fines paid on manipulation charges. On that subject, Deutsche earlier announced it was pulling out of the physical gold and silver markets, as part of its rolling withdrawal from all physical commodity trading. Banks from Europe to the US have been under attack from the LME and the Fed with regard their physical trading and warehousing of commodities, with manipulation once again the accusation. They are all quietly bailing, and Deutsche was one of a handful of banks canvassed each day for the gold price “fix” (perhaps an unfortunate choice of word). Deutsche is not keen on any further manipulation charges.
The SPI Overnight fell 7 points.
GUD Holdings ((GUD)) is due to release its first half profit result today.
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