Leading up to today's data dump from China data Asia stocks were selling off in anticipation for a soft set. GDP data was the headline number as it previously sat perfectly at the governments’ 7% target. Analysts were collectively forecasting a consensus of 6.8% and today we came in at 6.9%. So on one hand we are lower than the previous reading but on the other we did beat expectations, so it will be interesting to see how the markets react in the remainder of the week. Elsewhere we have a slightly mixed picture as retail sales beat expectations, up 10.9% vs 10.8% forecast whilst industrial production fell short at 5.7% vs 6.0% expected.
The moves were a little underwhelming when you consider the data set
Initially the Australian Dollar jumped higher across the board but quickly sold off to pre-report levels. However what I have taken from this release is the lack of reaction across the board to suggest the markets do not fully trust the data being presented to them. We have seen the markets move much further over much less, so we may need to wait for additional data before we see if traders believe today's data.
For a perspective of 'potential' GDP growth we have to look at manufacturing PMI.
Currently sitting below 49.8 it shows that overall the sector is contracting and getting dragged down by raw materials inventory and employed persons. Whilst this is not encouraging then the new orders does take the sting out of the bearish tail. But there is a caveat; these are the government's official figures and paint a slightly rosier picture than the Caixin PMI which sits at 47.2, its lowest since 2009.
Caixin PMI vs Government PMI tell a different storey.
According to the latest report production has been cut at its quickest rate since 2009 and job shedding accelerated to an 80-month record. Additionally new orders contracted at a sharper rate to spell further trouble for their export business. When you put these together then they point towards a slower GDP growth ahead and for the government to miss the 7% target.
Market's reaction relatively subdued around China GDP
With GDP growth below the 7% target and industrial production also below consensus then markets could have taken this worse than they did (had they not been overly short before the release). But what is more noticeable was the lack of follow-through after markets digested the data.