Chinese Expansion Forthcoming
According to data released last night, Chinese manufacturing activity remained positive in December as an increase in new orders helped to boost preliminary results for the HSBC/Markit survey. The headline purchasing managers’ index gained to a reading of 50.9, rising over November’s 50.5. The expansionary signal is indicative of growth, although tepid, in the world’s second largest economy and supports speculation that GDP will be in the area of 7.4-7.5% this year.
The pace of growth, albeit slower than in previous years, still places China atop the world’s fastest growing economies and rises above the US’s projected 2.5% advance in 2012.
Positive findings by the HSBC/Markit survey is helping to alleviate pressure from earlier speculation of an imminent rate cut for the UK economy. In statements released late yesterday, Standard and Poor’s downgraded the outlook for the country’s AAA rating, stating that concerns had emerged over the likely recovery of the UK economy and its public infrastructure finances. The global credit agency now sees a “one-in-three chance” that the country’s rating could be lowered in the next two years, given that the economy’s “performances weaken beyond our current expectations”.
Although widely negative, the warning is being received with little fanfare as S&P is the last of the big three ratings agency to move in this direction. Just last week, Fitch Ratings had issued a warning on current plans for the economy that have “weakened the credibility of the UK’s fiscal framework”.
The imbalance of the two events and focus on global growth recovery is helping to bolster the pound in light of the negative sovereign outlook announcement. As a result, the day’s support is likely to prompt a test of the upcoming resistance level at 1.6225, en route towards an advance on medium term targest at the 1.6300 round figure.