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MARKET WRAP

• CHINAS GDP DATA REFLECTS 2 MONTHS OF LOCKDOWN • RISK OFF SENTIMENT SENDS TRADERS TO SAFE HAVENS • CANADIAN DOLLAR ROCKED BY 18.5 YEAR LOWS IN OIL

The big news today was that China’s GDP contracted -6.8% year on year, which is a far cry from the 15% seen in 2007 and even the recent average of around +6.5% since 2017. If China’s GDP data follows their manufacturing data, we should see GDP back up to more normal readings in H2 of this year, but they are reliant on the rest of the world getting back up on their feet and buying Chinese goods in the very near future. The world supply chain has been shown up for its largest vulnerabilities and just maybe things won’t go back to the recent way of doing things. The anti-China murmurs are getting louder and so much so, Huawei is asking governments to not backing out of the 5G deals that were agreed to late 2019, early 2020. The CSI300 index was up today and the USD/CNY traded lower but still ends the week up, which is keeping the US dollar strong against other major crosses.

The Chinese GDP data does highlight how bad the European countries, UK and USA could also be hit, due to their recent 2-month lockdowns. China got back up and running relatively quickly but the likes of the UK could take longer to get back up to full production again. There is talk of wanting to get back to normal, but the governments have no defined exit strategy from the shutdown. We do know it will be staggered and the announcement from President Trump yesterday of the 3 phases the USA will use could be a template for other countries. Facebook’s CEO Zuckerberg showed how far this may extend when he announced the limiting of mass gatherings of Facebook employees will extend to June 2021, such is the fear of a second wave of shutdowns. EURUSD had traded lower since Tuesdays close but found some bids today from the London session with market analysts’ expectations for the EU inflation data being met. A resumption of traders looking for safe havens meant that the USDJPY, USDCHF were all down as the Risk Off sentiment was reflected in the buying of yen, Swiss franc, euro and Bonds.

Oil traded lower again today reaching $17.31 as the supply versus demand issue continues. Further extensions of lockdowns and slow restarts to economies is now pushing the lack of demand to the fore and producers will have to come back with larger cuts in production if there is to be any levels of support to the oil complex. Chinas economic downfall was another blow to the oil prices but the increase in builds to inventories as shown earlier this week from the USA data has had the prices of crude on the backfoot all week. USDCAD was unable to capitalise on the moves lower in oil and is carving out a pennant formation for the last month, reflecting the uncertainty around the US dollars ability to move much higher and the expectations that Oil is at the lows.

#Fundamentals #Macro #News

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