Chinese GDP slips to lowest since 2009 but beats estimates

• GDP expands by 7.3% in China in year to September

• Services and exports the main contributors, may delay stimulus efforts

• AUD higher on China news, but RBA maintains it is too strong

• UK public sector borrowing due on last quiet day of the week, GBP up

China’s GDP reading for Q3 has beaten estimates, it was shown overnight. Output rose by 7.3% in the year to September, beating the 7.2% market consensus but falling below the 7.5% growth rate seen in Q2. It is the slowest rate of growth that the Chinese economy has reported since Q1 2009. Growth was seen in export and service sector output primarily and it is the latter that is the most important. Economists have been very worried as to the strength of the domestic demand within China given recent sentiment and retail sales numbers.

Should the domestic picture remain strong then that is only a further signal that the powers in Beijing will leave the stimulus lever alone. Obviously this has dragged regional shares lower but has allowed the Aussie dollar and the yuan to gain through the Asian session.

The AUD strength comes despite yet another protestation from the Reserve Bank of Australia that the currency is too strong. According to the minutes of the RBA’s October meeting, during which the cash rate was kept at 2.5%, the AUD “remained high by historical standards - particularly given recent declines in key commodity prices - and was offering less assistance than would normally be expected in achieving balanced growth.”

This led to chatter around a period of stability in interest rates in Australia, something that the market is also looking for. OIS swaps are showing that there is very little probability of an interest rate increase in Australia until Q3 2015. While some commentators would be quick to point out that interest rates can move down as well as up, we would reiterate that inflation is currently running at 3.1% and house prices are up 14% in the past year. It is my belief that the first impetus will be higher from the RBA, but the question is when.

USD has opened in Europe on the back foot although there is little reason more than the ongoing lack of yield support to blame I believe. The US 10 year yield closed at 2.14%, only 30bps from last week’s lows. What will turn it around will be a pick-up in US data and the Federal Reserve continuing its tapering program come the end of the month. Unfortunately, apart from existing home sales data due this afternoon, there is little on the data docket to support the greenback. Tomorrow’s CPI reading could help but I think we will see a similar picture to that which we are seeing in other developed nations.

While we will preview the release more deeply tomorrow, we have to say that the shifts in the make-up of the US energy market are having an effect on inflation. The explosion of shale and fracking production has driven the marginal cost of a barrel of oil dramatically lower on global markets. The impact on the trade balance of the US is, of course, huge; plus, imports have cratered.

As a result of this overflowing supply of new oil and improved distribution pipeline infrastructure, the retail price of gasoline for the average American has dropped nearly 15% since late June to an average $3.17 a gallon. That works out at a $50 saving per family per month. While that kind of rebate is not going to set the world alight and fire the US economy to record levels of growth it should prove broadly supportive of consumption-led expansion.

The most important announcement of the day belongs to the UK with the latest government borrowing numbers due at 09.30. Despite the strength of the UK economy, the fiscal deficit – the difference between what the government receives in taxes and what it spends – could be shown to be widening. This means either tax increases or public spending cuts to balance the books and we know which one of those the current Chancellor prefers.

Elsewhere, the mood remains fairly tranquil as we await data risk towards the end of the week.

Have a great day.