Market Comment 13th July 2012

Concerns over the Chinese economy have been rumbling on for months now and the overnight release that showed growth slowing to its worst is three years is certainly a cause for concern.  

The Chinese administration has long been obsessed with its GDP figures and there are many who doubt that even the 7.6% announced overnight is not a little over stated as many economic indicators and business surveys have been telling a slightly different story.  Manufacturing in China is suffering and the official numbers always seem to be at odds with other independent readings and there is no doubt that sectors are contracting speedier than the data will tell you.  China's economy is slowing because its biggest customers are not buying its goods and whilst they are trying to replace the lost demand from the West with their own domestic demand, it isn't taking up the slack yet.  We've seen indications of this earlier this week when imports took a dive. 

So why aren't the markets taking this data badly?  Most likely because of the grey areas surrounding the figures and that whilst GDP may be slowing more than expected in the world's second largest economy, it is not as bad as it could have been and China is still growing at a fair lick.  On top of this investors remember that during the crash in 2008 when the globe and all the major western economies slumped into a deep recession, China implemented huge stimulus measures and barely blinked.  Due to the love affair that its leaders growth the chances of another bout of stimulus measures are highly likely if they feel necessary and of course it's not as if they'll need to borrow any money to do so by going to the debt markets.

US markets recovered from their lows last night but still the Dow Jones posted its sixth day of declines as US corporate earnings were weighed down by  persistent fears for the global economy and Europe's debt crisis.  The Dow's losing streak saw it close at 12,573 down 31 points maintaining its longest losing streak since May.  But as mentioned a few bulls may take heart from the fact that it was significantly off its low for the day which was some 80 points lower when the FTSE had closed earlier in its session and so the London market is up some 25 points to 5633 at the time of writing, brushing off the Chinese GDP data.  Support for the index is in at 5600 meanwhile the near term resistance is seen around 5675.

EUR/USD produced another 2 year low, touching 1.2166 before rebounding.  The euro continues to be weighed down by the steady march higher of Italian and
Spanish bond yields.  General weakness in sentiment in other markets also pushed money in to the dollar, further depressing the euro.  Whilst we've
seen a small bounce this morning to 1.2190 so far this morning the downward trend remains very much in tact and there seems to be little going for the single currency.

Gold fell on Thursday on traders' disappointment at the lack of demand for a third round of quantitative easing and also a rush into the dollar spurred
by a risk off mood in other markets.  Gold shed $10 on the day at around 1567 but was well off the lows at 1554.  This morning however bulls are bidding the yellow brick higher to 1573.

Crude oil prices were initially in negatively territory for most of the session, with Brent struggling to hold above $100 a barrel as the lacks of
demand for a third round of quantitative easing strengthened the dollar.  In the afternoon,reports that the US is to impose further sanctions on Iran
lead to a sharp rebound on fears of escalating supply disruption fears and this morning that strength has filter through with Brent up another buck to
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Market Comment 13th July 2012

Concerns over the Chinese economy have been rumbling on for months now and the overnight release that showed growth slowing to its worst is three years is certainly a cause for concern.  

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