Overview: Weaker data from China coupled with pressure on the European periphery is weighing on sentiment after yesterday’s retreat in US stocks saw the S&P 500 again retreat below the 200-day moving average. Chinese shares staged a power reversal after making new four-year lows with the help of supportive comments by officials and pledges to ease the strain from the consequences of using equity for collateral. However, the coattails of the rally proved short, and most other Asian equity markets fell, and Europe is off to a soft start. A court ruling yesterday that found that Spanish banks were liable for some mortgage tax which is usually passed on to customers spurred sharp losses in shares prices yesterday and today. Italian bank shares also remain under pressures. The index of Italian bank shares is off 18% over the past three weeks and is down more than 5% this week. All told, the Dow Jones Stoxx 600 is holding on to about a 0.3% gain for the week through the European morning. European peripheral yields are seven-eight basis points higher while core yields are slightly lower. The dollar is narrowly mixed, with the dollar bloc firm alongside, whereas most of the majors are nursing small losses. The euro is consolidating yesterday’s losses and has been confined to 20 pips on either side of $1.1450. The dollar has also been limited to about 20 pip range around JPY112.35. Sterling held $1.30 but could not regain a foothold above $1.3050.
China: Third-quarter GDP disappointed at 6.5%, which is the slowest since 2009. It appears that manufacturing was particularly weak. Some will want to attribute this to trade, though the Chinese economy appeared to be losing some momentum prior to the escalation of trade tensions. Economists had looked for 6.6% growth after 6.7% in Q2, but the data is hardly precise enough to give a 0.1% deviation much significance. Still, monthly September data, which included softer industrial output (5.8% vs. 6.1% August), suggests weakness. On the other hand, retail sales accelerated to 9.2% from 9.0% and fixed-asset investment ticked up (5.4% vs. 5.3%). On the week, the US dollar rose a net 0.1% against the yuan. It is the third consecutive decline. Since the end of March, the US dollar has risen against the yuan consistently except for five weeks.
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