Equities are rebounding on Tuesday; setting up a possible fourth positive day for the FTSE 100 this year after Chinese economic data raised the prospect of further government stimulus.
There hasn’t been a big deceleration in China over December but while inflation remains low, missed expectations raise the possibility of further rates cuts from the PBOC.
Looking at the data from the standpoint of Chinese policymaking, there may be some cause for optimism. The goal was to grow 7% in 2015, if the data is to be believed then that has more or less been achieved with growth of 6.9% y/y. The longer term goal of shifting the economy away from its reliance on manufacturing exports and construction towards domestic consumption is taking shape; retail sales growth has accelerated over the year while industrial production growth has slowed.
Basic resource and financial companies are leading a jump across every sector of the FTSE 100 as copper and oil prices rebound while defensive areas like tobacco and utilities are underperforming amidst generally risk-on sentiment.
This morning's data confirms that it's not really the Chinese economy that has sent the FTSE 100 to its lowest close in three years. At the heart of it, earnings appear to have topped out, central banks are either at maximum quantitative easing or winding it back so China is the excuse for a timely pullback in equity benchmarks with overstretched PE ratios.
The British pound gained against the US dollar and euro after UK core inflation that strips out the effect of oil prices rose more than expected to 1.4% y/y
After the long-holiday weekend, US markets are setting up for a higher open on Tuesday as Morgan Stanley (N:MS), Bank of America (N:BAC), Unilever (L:ULVR) and Delta Air Lines (N:DAL) are set to release fourth quarter earnings before the opening bell. Advanced Micro Devices Inc (O:AMD), IBM (N:IBM) and Netflix (O:NFLX) report after the close
USA pre-opening levels
S&P 500: 28 points higher at 1,908
Dow Jones: 231 points higher at 16,219
Nasdaq 100: 68 points higher at 4,209
"DISCLAIMER: CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed.
No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. "