China Slows Down
China’s GDP growth has not been this low since the first quarter of 2009. According to data published this earlier this morning, China’s GDP grew by 6.5%, which was 0.1% below expectations and 0.2% lower than the previous month’s result. Analysts who already estimated that China’s growth would slow down were proven right. That said, a 6% growth for the world’s second largest economy is still impressive, however, the first signs of difficulties due to the trade war are already showing themselves. Industrial production grew by 5.8%, which is 0.3% less than the previous month. Meanwhile retail sales grew by 9.2% and 0.2% more than expected. Overall consumption is dynamically growing while production is on the decline.
Uncertain Direction
The US trading session was overwhelmingly bearish yesterday, pushing major indices down by 1-2% approximately. According to the Fed’s meeting minutes they plan to raise the base interest rate by 0.75% in the next 12 months, which naturally drove investor interest towards the bond market. China performing below expectations pulled Asian stocks downwards as well. The Asian trading session began with stocks plummeting by 2-2.5%, then suddenly surging upwards after the Chinese government announced they would support the markets. Following the government statement the Shanghai Composite rose and closed with closed with a 2.5% increase. The Hang Seng closed 1% higher as well. The Japanese index on end the trading session on a positive note. Instead, it declined by 0.5%. US index futures are also on the rise, which is a good sign for the opening of the European and North American trading sessions.
WTI
The constant turmoil surrounding oil always gives business journals a good story to write. The killing of a Saudi journalist may lead to sanctions against Saudi Arabia. Headlines from almost every news outlet spoke about the possibility of the US limiting Saudi oil exports, although investors didn’t seem entirely convinced. The price of WTI has slowly been slipping downwards since October 4. Now, after three relatively large waves of sell-offs it dropped from 77 dollars to 69 dollars.
The slowing of China’s industry could be a factor here, since it means the demand of one of the largest oil importers may decline as well. In addition the probability of the USA placing sanctions on its strategic partner and geopolitical counter balance against Iran is rather low. In the end it may simply come down to threats and measures taken to keep up appearances, since the current administration can’t risk ruining friendly relations with the Middle East’s largest Sunni superpower. As a result the price of oil moved back below 70 dollars, which is still an acceptable range for OPEC countries. Looking at the chart, the range between 67 and 71.30 seems to be an equilibrium. If price broke out of this range, either upwards or downwards, it would quickly likely quickly return back.
USDCHF
The USDCHF is firmly parked on the resistance line. The chart illustrates how the pair’s components are moving towards parity. The magic of round numbers makes 1 seem like a natural resistance line, however, the true resistance is just 25 pips lower at 0.9975. The chart stretches all the way back to May and looking at this price level from a long term perspective makes it seem particularly noteworthy.
Over the past 5 months the USD attempted to break this line countless times, however, the only occasion when it successfully stayed above it for any length of time was a brief period in mid July. At that point price increases lost its drive, leading to a series of corrections. This latest attempt started gathering momentum from 0.9550. The initial increase was followed by a slight dip, before going at it with full force starting on October 15. This week’s events made it clear that the Fed is strongly committed to raising interest rates and one of the effects of that commitment was the tailwind driving the USD. Looking at the patterns on the chart it seems only a matter of time until the dollar reaches parity and above.
Sincerely,
Laszlo | Market Analyst
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