Research: China outlook - Recovery set to lose steam in 2017

Allan von Mehren Danske Bank A/S

Growth:

Chinese growth indicators continue to support the case for a moderate recovery this year. PMIs have trended higher and industrial production and profits have rebounded too. Indicators for electricity production and steel production confirm this.
The recovery is being driven by (a) fiscal stimulus via infrastructure investments, (b) a recovery in the construction sector due to strong home sales and reduction in home inventories and (c) a moderate export recovery supported by a 10% weakening of the CNY.
Looking ahead, we expect to see some moderation in the recovery going into 2017 as the stimulus effects fade slightly, and the biggest boost to construction should fade as home sales growth has come down in response to regional tightening measures. We expect average GDP growth to be 6.6% in 2017 (consensus: 6.3%).

Policy:

We expect monetary policy to be on hold for the rest of this year but expect to see a resumption of easing in Q2 17 as the cycle loses some steam. However, fiscal policy is the preferred tool for now as the government is concerned over rising leverage in the financial system and regional housing bubbles. The government has already indicated a further fiscal easing in H2 but not how much. We believe the fiscal growth impact will on average be slightly smaller in 2017 versus 2016.

Markets:

We look for a continuation of the weakening trend of the CNY, not least versus the EUR where we expect a 10% depreciation +12M. For 2016, we believe there is more upside as momentum is positive and the business cycle still supports profits. However, stock markets will be more challenged in 2017 as growth momentum fades a bit again.

Download The Full Flash Comment

Author

Allan von Mehren

Danske Bank A/S

EUR/USD holds losses below 1.1850 ahead of FOMC Minutes

EUR/USD stays on the back foot below 1.1850 in the European session on Wednesday, pressured by renewed US Dollar demand and reports that ECB President Lagarde will step down before the end of her term. Traders now look forward to the Minutes of the Fed's January monetary policy meeting for fresh signals on future rate cuts.

GBP/USD defends 1.3550 after UK inflation data

GBP/USD is holding above 1.3550 in Wednesday's European morning, little changed following the UK Consumer Price Index (CPI) data release. The UK inflation eased as expected in January, reaffirming bets for a March BoE interest rate cut, especially after Tuesday's weak employment report.

Gold retains bullish bias amid Fed rate cut bets, ahead of Fed Minutes

Gold sticks to modest intraday gains through the early European session, reversing a major part of the previous day's heavy losses of more than 2%, to the $4,843-4,842 region or a nearly two-week low. That said, the fundamental backdrop warrants caution for bulls ahead of the FOMC Minutes, which will look for more cues about the US Federal Reserve's rate-cut path.

Pi Network rally defies market pressure ahead of its first anniversary

Pi Network is trading above $0.1900 at press time on Wednesday, extending the weekly gains by nearly 8% so far. The steady recovery is supported by a short-term pause in mainnet migration, which reduces pressure on the PI token supply for Centralized Exchanges. The technical outlook focuses on the $0.1919 resistance as bullish momentum increases.

Mixed UK inflation data no gamechanger for the Bank of England

Food inflation plunged in January, but service sector price pressure is proving stickier. We continue to expect Bank of England rate cuts in March and June. The latest UK inflation read is a mixed bag for the Bank of England, but we doubt it drastically changes the odds of a March rate cut.

Top 3 Price Prediction: Bitcoin, Ethereum, and Ripple face downside risk as bears regain control

Bitcoin, Ethereum, and Ripple remain under pressure on Wednesday, with the broader trend still sideways. BTC is edging below $68,000, nearing the lower consolidating boundary, while ETH and XRP also declined slightly, approaching their key supports.