Concern as China Posts Slowest Rate of Growth for 25 Years
While China’s year-on-year (YoY) growth has posted just -0.1% below the forecast level of 6.9% the result is nonetheless causing a stir among investors and economists. The economy grew at the slowest rate for a quarter of a century, down from 7.3% in 2014 and -0.2% below Beijing’s official growth target. Many analysts had previously claimed that growth slower than 6.8% would result in calls for more economic stimulus, while others have questioned whether the figures have been inflated to hide a larger slowdown.
China’s economic performance is one of the key factors in motivating the International Monetary Fund (IMF) to cut its world growth forecast. The Fund has downgraded its global GDP forecast for the third time in under twelve months, claiming growth will now be 3.4% in 2016, down -0.2%. The IMF left its forecast for China untouched at 6.3%, which is significantly under Beijing’s 7% growth target.
Yesterday…
Global Stocks Struggle to Stay in the Black as Oil Remains Under US$30
Stock markets around the world are struggling to make gains today, with China and oil both continuing to weigh on the minds of traders. After opening positive, sliding negative and then rebounding again, the FTSE is once again in the red, down -0.3%, while the S&P/TSX Composite Index for Canada is down -2.1%.
The US markets are closed for the Martin Luther King Jr national holiday.
Earlier…
After two weeks of gloomy news, there is finally a reason to be optimistic over the state of the UK economy as EY ITEM Club have released a report predicting that GDP would rise further than the current consensus of 2.4% in 2016. Meanwhile, slippery oil prices continue to cause woe for Canada, with some postulating that it may fall to the government, not the Bank of Canada (BOC) to stimulate the economy. The US Dollar is also soft today as economists begin to wonder whether the Federal Reserve may be forced to deliver a rate cut rather than additional hikes this year.
GBP/CAD Positive Among Rising Pressure on BOC to Cut Interest Rates Further
Sanctions on Iranian oil production have recently been lifted, meaning that an additional 700,000 barrels per day could flood the market in 2016, further compounding price drops. Both WTI and Brent crude are trading under US$30 per barrel, with Brent sliding to a twelve-year low of US$27.70.
Refinery Flint Hills Resources LLC, producers of North Dakota Sour crude oil have released a bulletin claiming that they will pay $0.50 per barrel to producers willing to take oil from them. The ultra-low quality oil is being sold at a loss due to a pipeline supply issue, but the drop in price of North Dakota Sour from US$47.60 as of January 2014 to US$13.50 12 months ago to the present negative rate highlights just how extreme the effects of the global oil supply are becoming. Canadian bitumen is faring little better, falling from US$80 under 24 months ago to US$8.35 last week.
The sliding price of crude caused the Canadian Dollar to fall to almost-13-year-lows, while the Canadian stock market is currently down 22.2% against its 2015 peak. The worsening conditions have economists split regarding whether BOC governor Steven Poloz will deliver another rate cut after the next meeting, or whether the onus now falls on Canada’s government to provide the necessary fiscal stimulation to help rescue the economy from its current floundering state.
While the BOC is currently predicting growth of 2% in 2016, the Canadian Imperial Bank of Commerce’s (CIBC) World Markets Chief, Avery Shenfeld, has recently stated that Canada would be lucky to see GDP rise by more than 1%.
Pound Sterling to US Dollar (GBP/USD) Exchange Rate Strong on Federal Reserve Cut Speculations
According to the latest market speculation, the Federal Reserve could go from being a leader in terms of raising interest rates to having to reverse its December decision and cut rates back down to 0.25%. The new speculation comes as the Chinese crisis continues to drag down global stock markets and oil plunges toward $27 a barrel. Several economists have drawn comparisons to the Reserve Bank of Australia (RBA), the European Central Bank (ECB) and the Swiss National Bank (SNB), all of whom raised interest rates in recent history, only to have to begin cutting again shortly after.
A poll of 120 economists, carried out by Reuters, shows the consensus is for the federal funds rate to reach 1.00-1.25% by the end of 2016, yet futures prices show the market is barely anticipating two hikes. In the case of the dramatic policy reversals of the central banks mentioned above, futures prices didn’t show expectations of a cut until the last minute.
GBP, CAD, USD Forecast: Consumer Price Indexes on Tap
The UK, Canada and the US all release Consumer Price Index data this week, with UK CPI on Tuesday, followed by the US on Wednesday and Canada on Friday. UK Core CPI is expected to remain level at 1.2%, US core inflation will rise to 2.1% and Canadian Core prices will stay at 2.0%.
Latest GBP, CAD, USD Conversion Rates
The Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate is currently trading around 2.0724, with the Canadian Dollar to Pound Sterling (CAD/GBP) exchange rate trending in the region of 0.4820.
The Pound Sterling to US Dollar (GBP/USD) exchange rate is currently trending around 1.4298, while the US Dollar to Pound Sterling (USD/GBP) is trading in the region of 0.6994.
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