LCG: Weak Chinese Data Dulls Trade Talk Optimism By LCG Research Team


Wall Street extended gains on Thursday, thanks to Facebook and the Fed’s dovish turn. In Asia, disappointing Chinese factory growth data dulled optimism over progress in US -Sino trade talks, keeping Asian markets mixed. Europe has had a mixed start

Data showing that Chinese manufacturing contracted at the fastest pace in 3 years dented risk appetite overnight. The figures are further evidence of headwinds hitting the worlds second largest economy, despite Beijing taking steps to shore it up. The Caixin manufacturing pmi slipped to 48.3 in January, from 49.7 just one month earlier. Traders will be watching closely for further moves by China to support growth. The expectation is that Beijing will act quickly, which is keeping the equity markets buoyant.

The Aussie dollar, which is broadly considered a liquid barometer for Chinese investment sentiment, slid 0.4% overnight amid growing concerns for the health of the Chinese economy.

Trade talk progress optimism

Whilst Chinese manufacturing data weighed on sentiment, US – China trade talk progress provided a lift. Trump saying that he will meet with President Xi soon is boosting optimism that the talks must be nearing a deal. The market widely assumes that the two sides are still some distance from an agreement; traders are deeply skeptical that a deal can be hashed out in time. However, another meeting between the two leaders would suggest that that the possibility of sealing a trade deal before the March deadline still exists.

The reality is this meeting appears like many before. Lots of positive comments coming away from the talks but little solid evidence of a deal coming through. As the March trade deadline approaches, investors will be more demanding of evidence to support markets at current levels.

Non-farm payrolls Up Next

The dollar is holding steady ahead of the NFP. 174K jobs are expected to have been created. This comes after a very strong December, which saw 312k jobs created.

The ADP private payroll data smashed expectations earlier in the week. Given the strong correlation between the ADP data and NFP figures, we would usually expect a beat for today’s payrolls as well. However, given the extremely strong December figure, it would be standard to see some payback this month which could bring the headline figure lower. Even in the case of a surprise to the upside, it is doubtful how much support a strong number would offer to the ailing dollar following the Fed’s decision to put rate hikes on hold.

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Jasper delivers regular commentary, seminars and webinars on market news, trading analysis, strategy and psychology. He is regularly interviewed by BBC News, Bloomberg, CNBC and Sky News, and has featured in The Times, Guardian and Daily Telegraph. Jasper hosts a weekly charting analysis webinar. He is qualified as a Chartered Market Technician (CMT) with the Market Technician Association, and has a degree in Finance and Economics.