Daily Insight
Group Economics Macro & Financial Markets Research
8 January 2016
China wobbles…but eurozone recovers Nick Kounis Head of Macro and Financial Markets
Research Tel: +31 20 343 5616 nick.kounis @nl.abnamro.com
expectations
The Chinese authorities suspended the stock circuit breaker
Eurozone economic sentiment and the composite PMI rose in the final
Aline Schuiling
months of 2015, while unemployment fell …
Senior Economist Tel: +31 20 343 5606
China fears continue to weigh on markets but Eurozone activity data beat
… and German factory orders jumped higher
aline.schuiling @nl.abnamro.com
Market sentiment deteriorates on China, but eurozone economy is recovering Investor sentiment continued to deteriorate on Thursday on concerns about the Chinese economy. At the same time the eurozone economy looks to be shrugging off slower growth in China, with a continued moderate recovery, according to various economic releases. Circuit breaking the circuit breaker As was the case on Monday, there was another rapid fall in China’s equity market, with the CSI 300 index breaching the 7% level that triggered an automatic shutdown under stock circuit breaker rules. This mechanism was partly blamed by some commentators for exacerbating losses and, later in the day on Thursday, China’s securities regulator suspended the circuit breaker. The policy U-turn follows other failed interventions in the market, which do leave a great impression. Wobbles over China’s growth and exchange rate policy The decline in China’s equity market led to a wider deterioration in investor sentiment, with oil prices dropping further, equity markets in the US and eurozone deeply in the red, the VIX moving above its long-term average and credit spreads widening. There are concerns that China’s economy is set for a hard landing, and about a sharp devaluation of the yuan. As noted in Tuesday’s Global Daily our base case remains for an ongoing gradual slowdown in growth. In addition, while we think that there will be further yuan weakness, we do not think the authorities are looking to allow the currency to collapse (see our FX Watch here for more). Economic sentiment rises for third month in a row in December … In addition, the advanced economies look to be continuing to recover. Indeed, a number of reports out of the eurozone economy beat expectations. The European Commission’s
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Daily Insight – China wobbles but eurozone recovers – 8 January 2016
Economic Sentiment Indicator for the eurozone staged its third consecutive monthly rise in December. It increased to 106.8, up from 106.1 in November, while moving further above its long-term average value of 100. The rise in economic sentiment mirrors the changes in the eurozone’s composite PMI. This indicator rose in every single month of the final quarter of 2015 as well and also ended up well above its long-term average. The rise in both surveys signals that GDP growth picked-up in Q4, from the 0.3% qoq that was realised in Q4. That said, the levels of both indicators has been higher than what seemed consistent with the level of GDP growth in the past few quarters. We expect only a modest pick-up in growth in Q4 (we have pencilled-in 0.4%).
Eurozone economic sentiment and GDP growth esilience continues % qoq
level
1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 -2.0 -2.5 -3.0
120 110 100 90 80 70 60 50 40 04 05 06 07 08 09 10 11 12 13 14 15 16 GDP (lhs)
Economic sentiment (rhs)
Source: Thomson Reuters Datastream
…, while the Eurozone labour market continues to recover Meanwhile, the eurozone’s unemployment rate came in lower than expected in November. It fell to 10.5%, down from 10.6% in October (revised lower from 10.7%). Unemployment has been falling non-stop since around the middle of 2013 and has now reached its lowest level in four years. Its decline has supported consumer confidence. According to the European Commission, consumer sentiment increased from -5.9 in November to -5.7 in December, a level which is consistent with ongoing robust growth in private consumption. German factory orders jump higher The final positive economic report for the eurozone that was published yesterday, was Germany factory orders for November. They came in much stronger than expected, rising by 1.5% mom, following a 1.7% jump in October. In October and November combined, domestic orders increased by 4% in total, while foreign orders rose by 2.5%. Orders from other eurozone countries increased by slightly more than 2%, while orders from noneurozone countries increased by almost 3%. The orders data bode well for German industrial production in November, which will be published today.
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Daily Insight – China wobbles but eurozone recovers – 8 January 2016
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