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Investment Idea: Economic Data from China, the US and the Eurozone for the Past 2 Weeks

Data from the last 2 weeks:

China:

  • The business activity index in the service sector for April: 53.4, previous 53.7;
  • The NBS business activity level in the manufacturing sector for April: 50.1 forecasted 50.0;
  • HSBC’s April business activity index in the manufacturing sector for April: 48.9, previous 49.2;
  • HSBC’s April business activity index in the Chinese service sector for April: 52.9, expected 53.1.

The Chinese business activity index hasn’t seen a massive improvement in neither the manufacturing nor the service sector. On 28th April it was made common knowledge that the People’s Bank of China is planning a further relaxation of their monetary policy.  This will allow Chinese banks to use state bonds from regional government as a kind of guarantee for 3 year loans lent by the central bank at low rates. This should provide for an increase in liquidity and the amount of credit available.

Before then, on 20th April, the People’s Bank of China dropped commercial banks’ reserve requirements by one percentage point, to 18.5%. This should provide for the stimulation of the economy by means of increasing available credit and liquidity and is an alternative to regional bond leasing.

In other worth-mentioning news in China: research made by the central bank showed that the country will need to invest 10 trillion yuan ($1.64 trillion) within the next five years in order to reach their target of reducing harmful emissions. We will keep an eye on how they’ll do this, whether gas, oil, nuclear energy or something else.

To sum-up: For us, first and foremost, the data on the potential rise of industrial metal prices is important. At Tuesday’s close the price of copper on the New York commodities exchange had hit a new high since November 2014 on the back of optimism about demand for the metal, coupled with the weakness of the dollar.

Eurozone:

  • The Markit business activity index in the manufacturing sector for April: preliminary 51.9, forecasted 52.6;
  • The core YOY CPI for April remained the same: 0.6%;
  • The YOY CPI for April remained the same: 0.0%;
  • Unemployment for March: 11.3%, expected 11.2%;
  • The Markit business activity index in the manufacturing sector for March: 52.0, expected 51.9;
  • Retail sales YOY for March: 1.6%, expected 2.4%.

To sum-up: The credit crisis in the Eurozone has come to an end, something March Data from the ECB testifies. The bond buying program has had a healing effect on the economy. However, no one can be sure at the moment as to whether the indicators are stable. Greece is still on the edge of a default. It’s worth putting sales on the EURUSD on ice.

USA:

  • Orders for durable goods for March: 4.0%, forecasted 0.6%;
  • April consumer confidence: 95.2, forecasted 101.6;
  • YOY GDP for (Q1): preliminary 0.2%, forecasted 1.1%;
  • Fed’s base rate left unchanged at 0.25%;
  • The ISM business activity index in the manufacturing sector for April: 51.5, forecasted 52.0;
  • The ISM business activity index in the service sector for April: 57.8, forecasted 56.2.

The US Fed noted both the slowing of economic growth and that of job creation. It’s interesting to see as the decision being made on the base rate approaches that all macroeconomic indicators in the US have started to worsen The market is going against them and has started to react by selling dollars against other international currencies. Meanwhile, the strengthening of the dollar has negatively affected sales in big US companies throughout the first quarter.

To sum-up: Weak stats could play into the hands of investors in stocks. Not changing the interest rates and keeping them low offers the opportunity to borrow money cheaply and invest it in the stock market where the profit made will cover the price of the loan.

Attention:

Forecasts which are made in the review constitute the personal view of the author. Commentaries made do not constitute trade recommendations or guidance for working on financial markets. Alpari bears no responsibility whatsoever for any possible losses (or other forms of damage), whether direct or indirect, which may occur in case of using material published in the review.

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