Europe
The IMF cutting its global economic growth outlook after Chinese growth prospects looked a little rosier than expected meant a confused picture for global growth and allowed attention to switch back to the upcoming ECB policy announcement on Tuesday.
The International Monetary Fund has cut its growth forecasts for the global economy on the back of a slowdown in China, ongoing weakness in the Eurozone and an impending recession in Russia.
The premise of a slowdown in China is not incorrect but the fact that China’s growth rate beat expectations on the same day the IMF cited China as the reason for their growth downgrade took the edge off the report.
The IMF is still expecting a growth pickup this year from 2014 levels partly thanks to the boost to consumers from lower oil prices but believes the troubles outweigh the benefits and so has cut growth from its previous forecast made in October.
An expansion of 7.4% in 2014 was the slowest pace of growth in 24 years for China and misses the growth target set out at the beginning of the year by the government. In the light of the housing slowdown domestically and the sluggish demand for Chinese goods from Europe it seems likely the government will lower its growth target for 2015 to closer to 7%.
Growth at these levels leaves Chinese authorities teetering on the edge of stimulus and reforms; the Chinese know that any stimulus introduced now will just delay and possibly harm the transformation from an export-oriented to a consumer demand-driven economy. As seen from the response in Chinese equities since the November rate-cut, more stimuli will likely be welcomed by markets.
Another day another rate-cut, this time it was European-neighbour Turkey cutting rates in response to political pressure ahead of June elections after growth was shown to slow to 1.7% year-over-year; well below the government’s 4% target. There were also signs of a slight slowdown in inflation to 8.17%, but that is still well above the central bank’s 5% target.
Mining companies Glencore Xstrata Plc (LONDON:GLEN), Anglo American and Fresnillo Plc (LONDON:FRES) responded positively to Chinese economic reports and were topping UK stock markets. Falling oil prices as well as a positive read-through from strong Delta Airways earnings meant International Airlines Group (LONDON:ICAG) and easyJet Plc (LONDON:EZJ) were top risers.
William Hill Plc (LONDON:WMH) shares jumped after a glitch led to results being released Monday night by mistake but then rolled over on Tuesday after a soft fourth quarter thanks to unfavourable sporting results took the edge of a generally successful year from the World Cup.
US
The first rumblings of the trouble caused by the huge rally in the US dollar to company earnings emerged on Tuesday after Johnson & Johnson reported disappointing quarterly revenue growth led by a fall in international sales.
J&J profits just exceeded estimates but it narrowly missed on the revenue side. The increase in revenues from J&Js pharmaceutical division were encouraging, but with about half its earnings coming from abroad, it’s going to have been difficult to hedge away the entire rally in the US dollar.
Delta Air Lines Inc (NYSE:DAL) shares were up over 5% after beating Wall Street expectations, the company made a loss because of its fuel hedging but put out an optimistic outlook for the forthcoming year.
FX
The US dollar was broadly stronger on Tuesday as expectations ramp up for ECB stimulus on Thursday’s meeting.
USD/CAD made large gains to its highest level since April 2009 as falling oil prices got exacerbated by a big drop in Canadian manufacturing sales.
A drop in global dairy trade weakened the New Zealand dollar on Tuesday sending NZD/USD down towards its recent 2 1/2 year lows at 0.76.
Commodities
Gold hit $1,290 per oz, the highest since the peak on Aug 28 as Europeans seek protection from the possibility of ECB beginning a more aggressive policy of money-printing in its Jan 22 meeting. Silver moved up to $18 for the first time since September.
Copper prices were steady-to-negative following the mixed picture painted for global growth from China and IMF.
Oil prices fell back towards Friday’s low with WTI around $46 per barrel, dented by the global demand outlook suggested by the IMF and a record output from Iran adding to the supply glut.
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