- Solid GDP and December activity data reinforced China soft landing thesis
- Equities momentum pulls ASX higher, sets European equities for gains
- Expect some rates action on UK retail sales
Better times for China means better times for all
Risk across equities has held steady against the likes of China GDP and Dec. Activity numbers which collectively came in either in line or above expectations. Q4 GDP y/y printed 6% vs 6% expected, while retail sales, industrial output and urban investment all exceeded forecasts. The stabilisation of these key data points consolidates China’s soft landing thesis in 2020, and reinforces USDCNH solidarity to the downside in the near-term. AUDUSD, given its proximate nature, also found support through the day.
Can’t stop won’t stop
Equities have experienced an unabated run-up this week confirming just how undeterred risk sentiment currently is thanks to the likes of a US-China Phase One signing and positive data surprises (US retail sales). None other than the ASX has been a beneficiary, after smashing above an important level in 7,000 and delivering a record breaking week. Cheered from the sidelines as well, the S&P 500 edges above its own significant 3,300 level following a string of positive Q4 earnings results across the banking sector. This bodes well for Europe open with FTSE eyeing off a 17pt jump out of the gates and DAX looking to run ahead to the tune of 72pts.
UK CPI risk up ahead
A quiet Friday calendar for Europe really only brings data risk in UK retail sales (9.30am GMT). But given the context of the BoE’s highly anticipated January MPC decision, this could cause some sizable jitters in GBPUSD should it print under expectations.
While retail sales won’t exactly be the nail in the coffin for a BoE 25bps cut on January 30, it could prove to be another red mark on the review sheet for on-the-fence MPC members, trying to figure out the state of the UK economy and whether it needs a sugar hit.
The fact that nation-wide supermarkets like Tesco were able to record a rise in UK Christmas sales, could keep pockets of the market optimistic that there’s some upside to a 0.5% m/m forecast, and that maybe the chances of near-term BoE stimulus are currently overstated. As markets look split on the BoE’s decision in January – this leaves plenty of room for rate re-pricing, though, we’re likely to see bigger waves come UK PMIs next Friday, arguably the key data point to watch over the next fortnight.
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