China economic growth slows to a five-year low

The big headline of the day is that China’s economy expanded at a five year low of 7.3%. This figure is below Beijing’s 7.5% target and the slower growth will likely raise fears over global economic growth prospects, but it should be noted there has been speculation of a possible Chinese economic slowdown for over a year and the GDP release was still above the majority of forecasts, which ranged from 6.8% to 7.2%.

After looking at the data in more detail, economists could even be encouraged to learn that Manufacturing Output increased by 8% from the previous September. After all, China remains the world’s second largest manufacturer and with the sector being one of China’s main GDP contributors, the fact that the sector is continually growing at a substantial level shows that demand is still there for Chinese products.

Due to it being largely expected that China’s GDP would come in below Beijing’s target, there was a mixed reaction to the economic release. In line with expectations, investor attraction to the safe-haven JPY was noticeable with the USDJPY pulling back by nearly 70 pips to trade as low as 106.242. Gold on the other hand, traded above $1250 for the first time since early September. The next resistance level for Gold is located around $1258 and unless fears escalate that the US inflation data will come in weaker than expected on Wednesday, I can see Gold pulling back to around $1245 by the time the US trading session commences.

Overall, the general consensus to the GDP data is that it will encourage the Chinese government to introduce more stimulus measures to help rebalance the Chinese economy. Investors are looking at this positively and I expect it is the driver behind the Aussie currently trading at its highest level in nearly a week (0.8827), while the Kiwi appreciated to its highest value in over one month (0.8032). If it is true that the People’s Bank of China will step in and move proactively to reinvigorate Chinese economic growth, the overnight increased demand for the JPY could also be short term. If this does prove to be the case, USDJPY resistance can be found at 107 and 107.303.