ETF Securities Research Blog

An important data week for China could provide an upside catalyst for commodities

Interpreting Chinese data releases for the months of January and February is always difficult because of the timing of the Chinese New Year (which can fall in either month). We gain a lot more clarity about the state of the Chinese economy with the March data releases that come out in April. We are hit with a wave of these releases this week: inflation, trade, money supply, loans, retail sales, industrial production and GDP.

The better-than-expected trade data released today has already sparked optimism in Asian equity markets, while the decelerating pace of foreign exchange reserve declines suggests less currency intervention by the country’s central bank (which bodes well for the stability trade).

Yesterday the IMF upgraded its forecast for Chinese GDP growth in 2016 and 2017, despite reducing its global growth forecast. While growth in the country continues to shift away from manufacturing and investment toward services and consumption, demand from commodities remains robust and China’s desire to continue to build infrastructure remains strong. We believe that the market is less likely to ignore the supply deficits in many commodities if China is perceived more positively.  Chinese Q1 GDP will be released this Friday and consensus expectations are for 6.7% y-o-y increase. A better-than-expected print could be a catalyst for sentiment around China improving.

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