SPECIAL REPORT: How Low Can Q3 China GDP Go?


*China Q3 GDP nears critical 6% level 
*Bullish pressure on USDCNH if we print under 6% 
*Traders to also take stock of September activity data



China data keeps Asia Friday busy

Markets are scheduled to catch the release of Q3 GDP and September activity data during tomorrow's Asia trading session with their official release by the National Bureau of Statistics of China due out at 1.00pm AEDT, October 18
 

What to expect?

Q3 GDP y/y consensus has come in at 6.1% and currently tests the lower bound of the government's target range 6.0-6.5%. A breach of 6% could have serious policy implications for PBOC. It appears less likely to happen however given the broad improvement in China's manufacturing PMIs in late September. Both the better-than-expected official Mfg PMI (49.8 vs 49.5e) and Caixin Mfg PMI (51.4 vs 50.2e) should see Q3 GDP most likely come in at 6%, though, with some slight downside risk of 5.9% given China's softening economic fundamentals. 

China's GDP has trended lower since the heights of early 2018 having been martialled by the imposition of tariffs, a prolonged US/China trade spat, a cooldown in global growth and rising geopolitical risks. The chart below shows that the decline in GDP has been met consistently with a stronger USDCNH, or rather, weakening Chinese Yuan. 

2019_10_17-China-GDP-USDCNH.PNG
USDCNH (Dark Orange, LHS), China GDP y/y (Light Orange, RHS). Source: Eikon

The September activity releases, which have also trended down over the last couple of years, are as follows.
  • Sep. Retail Sales y/y (7.8% forecast, 7.5% prior).
  • Sep. Industrial Output y/y (5.0% forecast, 4.4% prior).
  • Sep. Urban Investment y/y (5.4% forecast, 5.5% prior).
Retail sales appears set to fall while industrial output is penned in for a slight increase on the prior month. 
 

Pivot levels

If GDP misses. USDCNH upside: 7.131
If GDP beats. USDCNH downside: 7.08
Traders should also take into account broader developments across the US/China trade complex. 

 



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