Recent strong production in China seems to suggest government action is working. China may have a ‘soft landing’, despite other key issues, including debt and US tariffs. However, investors should look beyond such phrases, and keep an eye on the key data releases to form better long-term views.
On 16 April 2019 the Industrial Production y/y (year on year) data was released as follows: previous 5.3%, forecast 5.6%, and actual 8.5%. The actual data significantly exceed the previous and forecast data. This caused the AUD/ USD to rise, but only briefly. If we dig further and study the long-term graph of annual Production Data, we see 8.5% is indeed a spike- it has not exceeded 8.0% since August 2014. Generally Production Data has been flat, ranging between 5.5% and 6.5% since January 2015.
The key issue now for investors will be if the April 2019 result was a flash in the pan, or a sign of something new. So keeping both eyes open will be important.
Other Chinese Data and Related Issues
Beyond Production Data, we are all waiting for clarity about the China and US tariff issue. There has been a lot of noise lately, but no clarity. As we all know markets hate uncertainty. It may be the case a nebulas result ensues, a ‘sort of’ tariff agreement. Again, investors must look to the substance, not the media generated noise. Key implications surrounding the long-term impact of any deal on, particularly US and Australian companies, will need to be studied in detail.
Other important Chinese data includes quarterly and annual GDP. Also on 16 April 2019, the quarterly GDP for China was: previous 6.4%, forecast 6.3%, actual 6.4%. Thus GDP did not change, despite the dramatic annual rise in Industrial Production. This seems unusual. The future quarterly and annual GDP data may shed some light on things, but ordinarily, if Production Data rises, GDP should rise commensurately.
Chinese Trade Balance also needs to be monitored. On 12 April 2019 the data was: previous 34 billion, forecast 2 billion, actual 221 billion. This data is quite volatile. If we check the long-term graph, we see forecasts are all over the shop. The March 2019 fall of 34 billion tends to occur about once a year, and generally the Trade Balance ranges widely between 180 and 330 billion. There is not a clear up or down trend at present. We would expect with US tariffs, the Trade Balance to be declining consistently, but this has yet to occur.
The implications of the Chinese data are important for all global markets, but particularly Australia. There are strong correlations with the AUD, and of course mineral exports. Remember mining companies make up a significant part of the Australian ASX SP200 index.
If China and the US do not strike a win-win deal on tariffs, this will likely be a bearish factor for both economies. Australia is caught in the middle. Uncertainty brings out the bears, and we can see this clearly in the now established downtrend of the AUD / USD in the weekly charts.
Today technology has levelled the playing field. All of us, from the novice to sophisticated investor can source quality, independent data cheaply, and in some cases for free. This allows us to monitor things carefully and consistently. Some sites you might like to consider are below, look for their economic calendars-
- Forex Factory: www.forexfactory.com
- Trading Economies: www.tradingeconomies.com
- DailyFX: https://www.dailyfx.com
Remember focus on data, not opinion.
Like most things in life and in the markets- buyer beware. Avoid listening to ‘experts’, pundits and mass noise. Find the key data, and study things yourself. Form your own evidence-based opinion, and as always build a strong rational foundation for all investing decisions. Emotion is always the enemy of success.
Regards, Lee Spano, Creatness International www.creatness.com