The Chinese GDP reading came in at 7.4%

Good Morning all!

It was a mixed start to trading in Asia overnight after Asian equity markets were initially boosted by another rebound in US tech stocks and general equity markets. The Nasdaq finished higher by 22 points while the Dow added another 89 points in trading on Tuesday night. However it wasn’t all plain sailing for Asian stocks as investors weighed on Chinese growth numbers. The Chinese GDP reading came in at 7.4%, down from last quarter’s 7.7% but slightly higher than the 7.3% expected by the market. The number still saw the Chinese economy grow at its slowest pace in six quarters. Despite this the GDP reading is not considered too bad, scare mongering and market rumours have led to extremely volatile markets around all aspects of Chinese data but most have to consider whether this slowdown in China’s growth is temporary or a longer term problem. I would say that the market is currently split on that, but expectations on more negativity in the second quarter based on a slump in house prices won’t help those investors with a more bullish outlook on China.

After yesterday’s CPI inflation readings out of the UK and US today is the turn of the Eurozone, arguably where inflation is the biggest issue facing the single currency economy. Expectations are for inflation to remain steady at 0.5%, which if happens will have to be seen as a positive reading for the ECB. Mario Draghi has been trying to halt the slide in inflation for a number of months but to no avail. The fear of course is that the downward trend will continue for CPI in the Eurozone, something that would yet again put more pressure on the ECB to act to quell the fear of deflation. Mario Draghi and the ECB have continuously told press conferences that they have the power and tools to act if inflation continues to fall. If a more negative reading is shown this morning then it may well be that finally actions need to speak louder than words and the ECB have to act, whether they will or not is another question entirely. The ECB could well become the first established central bank to adopt a policy of negative interest rates, a move that would help halt the fall in inflation but could well have huge repercussions for financial market stability. Of course the ECB will be hoping for some relief in the CPI reading, however it would have to be a sharp move higher to take the pressure off of Mario Draghi and the ECB.

As we approach the long Easter weekend, today sits as the highlight of the week when it comes to economic data. Added to the readings stated above this morning we also see the UK unemployment figures announced. Ever since the BoE second round of forward guidance many market participants have started looking at a lower unemployment figure in the UK as the positive reading it is, and today’s figures are likely to show that the jobs market in the UK is continuing to improve. Expectations are for a fall to 7.1%, still below the 7% threshold the BoE bought in under their first round of forward guidance but still a solid move in the right direction. Many had worried that the 7% threshold could trigger a swift change in monetary policy in the UK and see a rise in interest rates. Today’s number will hopefully be taking as a positive if it comes home lower than expected, and with radio silence from the BoE after last week’s rate decision it seems that the UK economy would still be in a situation of steadily moving forward with nothing significant to report.

Finally the situation in Ukraine showed signs of escalating further yesterday as the government started to move forward with their plan of anti-terrorist action. Ukraine began its operation in the east as forces reclaimed an airport held by separatists, all this came amongst reports that Russian special forces were supporting the anti-government groups. It could well be that this move by the Ukrainian government begins the most worrying part of this whole crisis, as it is expected that the number of violent clashes will rise as Russia continue to support those people it says rely on the Russian Federation and Ukraine acts to rid its country of these terrorist groups.

As ever the financial markets will be keeping an eye on developments in the Ukraine with Gold already jumping higher as the old fashioned safe haven moves start all over again.

Ahead of the open this morning we expect the FTSE to open 52 points higher with the German Dax higher by 64 points.