Chinese Data Recap and What it Means for Global Markets, July 18, 2017

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Chinese Economic Data

• GDP held steady at 6.9% vs. (E) 6.8% in Q2
• Fixed Asset Investment was 8.6% vs. (E) 8.4% in June
• Industrial Production rose to 7.6% vs (E) 6.5% in June
• Retail Sales rose to 11.0% vs. (E) 10.6% in June

Takeaway

The headlines tell the story of yesterday’s data dump in China. The reports were universally better than expected, but GDP was the report that warranted the most attention as the headline growth rate held steady at 6.9% rather than pulling back as expected.

Quarter-on-quarter growth jumped to 1.7% from 1.3%, which suggests that the Chinese economy is starting to stabilize towards the top end of the government’s target range of 6.5%-7%.

Looking ahead, the solid growth level seems to be sustainable, and not just a short-lived spike in economic activity. Without getting deep into the details, the growth is consumption driven, and new government policy and reforms are poised to help continue fueling solid growth into H2’17.

Bottom line, yesterday’s strong set of Chinese economic reports were welcomed by economists, as they underscored the positive outlook for the global economy going forward. But the reason the data did not ignite a more pronounced rally in global equities is the fact that growth in China has become more of an expectation, and global growth as a whole is no longer a great concern (as it was back in the summer of 2015).

Instead, very low inflation rates in the US and Europe are the most notable concern, and until those statistics begin to firm, weak inflationary pressures will be a drag on risk assets like stocks in the months ahead.

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