Chinese GDP Beats Expectations But Remains Low

On the surface Chinese data this morning was positive, better than expected allowing traders and economists to breathe a sigh of relief. Asian shares climbed this in early trading as investors took solace from data showing the Chinese economy grew slightly more than expected in the third quarter, calming fears of a deepening slowdown in the world’s second-largest economy. China’s economy grew 7.3 percent between July and September from a year earlier, slightly above expectations. But it slowed from 7.5 percent in the second quarter, the weakest in nearly six years.

There were several other reports released alongside the gross domestic product (GDP) which showed factory output rose 8.0 percent in September from a year earlier, beating expectations for a 7.5 percent increase and up from August’s six-year low of 6.9 percent. Fixed asset investment, a key driver of the Chinese economy, was weaker than expected. It climbed 16.1 percent in the first nine months compared with the same period a year earlier, below forecasts for a 16.3 percent rise and cooling from 16.5 percent in the first eight months of the year. Retail sales rose 11.6 percent in September from a year earlier, below analysts’ predictions of 11.8 percent and down from the previous month’s 11.9 percent.

In response to this data the Australia dollar climbed 20 points to reach 0.8804 immediately after the release, while the kiwi dollar gained 6 points to trade at 0.7973.

The US dollar continued to trade on a weak note and remains flat at 85.04. After a week of wide currency market gyrations, investors appear to have settled in for a quiet start to the week, unwilling to take much action ahead of Wednesday’s U.S. inflation data and Thursday’s European manufacturing reports. In addition, the Federal Reserve is expected to follow through with its plan to end quantitative easing at the end of the month while benchmark U.S. interest rates are forecast to remain near zero well into 2015.

The Japanese yen gained steadily this morning to trade at 106.77 gaining on the weakness in the US dollar.  Resignations in Prime Minister Shinzo Abe’s cabinet were, in the short term, overshadowed by these external factors. The yen’s quick decline against the dollar in September prompted Finance Minister Taro Aso and other policymakers to warn that rapid moves in foreign exchange are undesirable though he added that the then levels of 108-109 were not that weak. Eisuke Sakakibara, who led both yen-selling and yen-buying interventions as Japan’s currency czar in the 1990s, told Reuters this month that authorities would have to step in if the U.S. currency surged to between 115 and 120 yen, although he does not expect such a rapid decline at present.

The last time Japanese authorities bought the yen was in 1998 when the dollar surged above 140, though economists caution that changes to the economy, including the impact of fuel costs and deflation mean that level cannot be seen as a yardstick today. Asked to forecast yen moves for the next 12 months, almost 60 percent of firms said they saw it moving between 100 and 110, while 35 percent projected a range of 110-120. The survey, conducted for Reuters by Nikkei Research, also showed that only 20 percent of firms think the economy – bruised by a sales tax hike this year – is ready to weather a second such tax hike planned for next year.