Daily reviews

22.04.2019

Strong data from China and the US encourage investors, oil rally continues

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Asian markets were trading mixed-to-positive last week, with the big story of the week was the raft of much stronger economic news out of China. According to the official data, the Chinese gross domestic product grew 6.4% year-on-year in the first three months of 2019.

  • Stocks were mixed-to-positive in a shortened week
  • Chinese gross domestic product grew 6.4% in the first quarter
  • S&P 500 snapped a 3-week winning streak
  • The dollar received a good boost from the US retail sales data
  • Oil prices surged for a fourth week in a row

Asian equities

Asian markets were trading mixed-to-positive last week, with the big story of the week was the raft of much stronger economic news out of China. According to the official data, the Chinese gross domestic product grew 6.4% year-on-year in the first three months of 2019. Fourth-quarter GDP growth matched expectations, coming in at 6.4 percent on-year from 6.5 percent in the third quarter. Last year, China's economy grew by 6.6 percent, the lowest pace since 1990s. Chinese authorities planned the 2018 budget with a deficit of 2.38 trillion yuan or about 2.6 percent of GDP. The most significant bright spots in the data were industrial production and retail sales. Industrial output grew 5.7 percent in December from a year earlier — beating economists’ expectations of 5.3 percent growth — outpacing November’s 5.4 percent growth. Meanwhile, retail sales data rose 8.2 percent in December on-year, in line with a forecast and up from November’s 8.1 percent gain.

However, in the middle of the week, China’s stocks fell from a one-year high, as automakers ran out of steam following a rally spurred by speculation about government stimulus to bolster car sales. The Shanghai Composite Index dropped 0.4 per cent to 3,250.20 after rising on Wednesday to the highest level since March 2018. Ahead of Easter holidays, Hong Kong’s benchmark dropped most in week. The Hang Seng Index lost 0.5 per cent to 29,963.26.

US equities

S&P 500 snapped a 3-week winning streak, though just inched lower by 0.08%. In general, majority of sectors rose - industrials and tech were leading the way higher, while healthcare and real estate weighed. Industrials rallied 1.3%. Chipmaker Qualcomm soared 40% after a major victory in surprise settlement of legal dispute with Apple.

Financials added 0.7%. Initially, investors were confused by mixed bag of bank earnings, but returned on Morgan Stanley's better-than-expected results. The New York-based company said it had earnings of $1.39 per share. Earnings, adjusted for pretax gains, were $1.33 per share. The investment bank posted revenue of $13.56 billion in the period. Its revenue net of interest expense was $10.29 billion, also surpassing forecasts. Morgan Stanley shares have climbed 18% since the beginning of the year, while the Standard & Poor's 500 index has risen 16%.

Currencies

It was a relatively successful week for the greenback. The US currency has appreciated against the European rivals and was nearly flat against the Japanese yen amid somehow mixed risk sentiment. The dollar received a good boost from the US retail sales data. U.S. retail sales increased a seasonally adjusted 1.6% from February, the strongest increase since September 2017. It’s a sign that the healthy job market has likely made consumers more eager to spend in ways that boost overall economic growth. Excluding autos and gas, retail sales increased by a still solid 0.9%. During the past year, retail spending has grown 3.6%. US weekly jobless claims hit the lowest since 1969. Initial claims for state unemployment benefits dropped to 192,000 for the week ended April 13. Claims have now declined for five straight weeks, which added to the positive sentiment around the greenback. Meanwhile, Philly Fed manufacturing index declined in April as outlook dropped to a three-year low.

EURUSD dropped to 1.1226 on Thursday and staged only a modest recovery on Friday. Earlier in the week, the pair failed to confirm a break above the 1.13 threshold and had to retreat amid a stronger dollar and lack of positive drivers from Europe. A weekly high was again registered at 1.1323 but the bulls struggled to keep the momentum, which confirms that the common currency remains not-so-attractive for buyers amid the lingering concerns over the regional economy. In the short term, the pair needs to overcome the 1.1250 intermediate resistance area in order to partially shrug off the bearish pressure.

Commodities

Oil traders pushed Brent to fresh November highs above the $72 handle last week. For the week, Brent rose 1.7%, while year-to-date, the gain was 34%. By the way, bulls reemerged at session lows to buy the dip, which confirmed that they had no intent letting the market’s momentum slide. According to the EIA report, U.S. crude stockpiles fell by 1.4 million barrels last week, marginally higher than the 1.2 million-barrel drop forecast by the market. It was the first crude inventory decline in four weeks. Meanwhile, Baker Hughes on Thursday reported that the number of active U.S. rigs drilling for oil fell by eight to 825 this week. That followed increases in each of the previous two weeks.

On Monday, crude oil prices extended gains and broke above the $73 barrier to touch a high of $73.65 after the reports that that U.S. Secretary of State Mike Pompeo will announce that from May 2, the State Department will no longer grant sanctions waivers to any country that is currently importing Iranian crude or condensate. As a reminder, the U.S. reimposed sanctions in November on exports of Iranian oil after Trump unilaterally pulled out of a 2015 nuclear accord between Iran and six world powers.