Market Highlights: Chinese economic growth model remains inefficient

Fundamental View

Yesterday saw the EURUSD continue its decline moving through several large, key technical levels. The morning began with a break down in the majority of European Services PMIs missing their estimates. This set the tone for the session and allowed the EURUSD to break lower, fuelled by proxy dollar strength as the UK also missed their headline estimate, resulting in the pair breaking through 11 year lows and breaking the important technical support of 1.1102, the low from the ECB Quantitative announcement on the 22nd of January. US data fared slightly better, leading with the ADP employment figure, which came in marginally below expectations, in line with our estimates. Although this was lower it was a slight miss and a solid upward revision to January's data offset this. Also, ISM Non- manufacturing provided enough of a catalyst to see the sell off in US bourses reverse. The Department of Energy Crude Oil Inventories surprised the majority of participants with a print of 10.303 million barrels against the expected 3.95 million. This forced crude to punch lower before reversing the entire move overnight and breaking to new highs.

Today’s View

This morning we saw the start of the National People’s Congress in China; They have cut their economic growth forecast to 7% from the previous 7.5% for 2014 as expected and Premier Li Keqiang has been quoted that “China’s economic growth model remains inefficient. Chinese bourses fell on the news, paying particular attention to the cut in Chinese inflation target to 3.0%; this negativity has translated into western bourses as mild indifference, the S&P holding flat around pivot and ESTOXX focusing mainly on the upcoming headline event. We also had Eurozone retail PMIs this morning with the majority of readings coming in below previous; this has extended the move to the downside in the EURUSD and we now trade around S1, stalling ahead of the main event this afternoon. Looking ahead we have the Bank of England rate decision, expected unchanged. We then have the ECB rate decision with the press conference later on. The 1245 GMT release will most likely remain unchanged, with the majority of the meaty discussion being held in the statement and press conference. The Quantitative Easing amount and nature is likely to remain unchanged with only the start date and structure being called into question, along with supply and the potential for missed purchase targets.