Shanghai Hits 6 Month Low After GDP Data

Shares in China have fallen to a six month low despite a stronger than expected GDP reading. The rest of Asia scaled back on losses after the announcement.

The GDP in China grew at an impressive 7.7 percent in Q4 2013. This was just above what was expected at 7.6 percent but below the 7.8 percent from Q3 2013. Other data released from China today showed that industrial output grew at 9.7 percent annually. This was just below expectations.

It would appear that China can deliver all the good economic data it wants, but it is more important that they make good on the structural changes they announced. All eyes are watching if they continue to deliver on the rates of growth as they enact reforms. This is what investors will be eyeing throughout 2014.

STOCKS

On Friday, the DJIA rose 41.55 points to finish the week at 16,458.56. The Blue Chip index was up a marginal 0.1 percent on the week. American Express (NYSE: AXP) posted solid Q4 profits that better than doubled. It was supported by increased consumer spending during the holiday season.

The other two major exchanges had largely mixed days to close the week. The S&P 500 lost 7.19 points to close at 1,838.70. Was down 0.2 percent on the week and down 0.5 percent so far this year. The Nasdaq Composite lost just over 21 points to close at 4,197.58. The tech heavy composite rose 0.6 percent for the week and is up 0.5 percent for 2014, so far.

The Shanghai composite has fallen 0.4 percent and below 2,000 for the first time iin 6 months. The last time it was here was back on July 31, 2013. Investors are reacting to news the PBOC and the government are vowing to push ahead with financial reforms. There is a plan to promote full convertibility of the yuan under the capitol account. This will affect the Forex markets and make China’s currency easier to trade.

The Nikkei has fallen over 112 points so far to its lowest level in a week. Prime Minister Shinzo Abe has promised to raise sales tax to 10 percent by the end of the year. This has affected the blue chip companies on the exchange, dragging shares lower. Shares in Sydney are also lower as the ASX 200 is down by 0.2 percent. The market is being pulled lower by steep losses in the financial sector.

CURRENCIES

EUR/USD (1.3527) has fallen back below 1.3548. We are about to test 1.35 and if that level holds, like we expect, then we can expect a rally back to 1.36 then 1.37. Expect rallies to be capped within those levels. A fall below 1.35 targets 1.35 and 1.3350.

USD/JPY (104.068) has moved a bit lower form 105 in a corrective move. We remain confident on the structure and in our target of 107. We see support at 103.67. A move above 105.40 targets 107. GBP/USD (1.6411) we continue our sideways range here, which has been going on for three weeks now. Support is at 1.63. We can see a rally to the upper part of this range at 1.66 while that holds.

COMMODITIES

Gold (1254.80) is moving higher, above 1250 as the support at 1235.20 is holding. We can now target 1280 while above 1250. WTI Crude (93.65) has fallen from 95.05. While below 95 we could consolidate from 93.10 to 95. Support is at 93.40 and if it holds we could have a bounce back to 96. Copper (3.3495) is trading nice and steady for now. We are near the target at 3.40, and need a move above 3.35 to see that. Above that sees 3.50.

TODAY’S OUTLOOK

Investors will be digesting the solid data coming out of the US to gauge the Fed’s next move regarding taper. Also, mixed data out of China and its structural reforms will impact trading today. Later this week we get data from both the US and global economies we should be watching. On Thursday we get Jobless claims, existing home sales and leading economic indicators from the US. On Thursday we get Eurozone PMI, Canadian retail sales.