A large amount of China data to be released tonight should have market impact

Tonight at 10 PM New York time, China will release a whole slew of economic data. 

The GDP for the 2Q will be the focus.  Expectations are for a a rise of 7.8% which is higher than the 6.1% gain in the 1st quarter.  Although much higher than other major global economies, the thought is that a growth rate of 8% is needed to support employment growth in China.  As a result, a gain of 7.8% is still indicative of a economy slowed by lower growth/exports. Last week, exports for China showed a decline of -21.4% YoY (Imports meanwhile fell by -13.2% over the same period). The growth has been helped by a $585 billion stimulus package. 

Retail Sales for June will also be released.  The expectation if for a gain of 15.3% YoY versus a gain of 15.2%  in May.  Although higher on a YoY basis, a gain of 15.3% YoY would imply a -0.6% decline on a MoM basis.  This is after a gain of 7.3% last month.   Once again although better in comparison to a year ago, the month on month figure will need something stronger to indicate economic momentum.

Also released will be the Industrial Production.  The expectation is for a gain of 9.5% YoY.  This is up from +8.9% last month and off the low of 5.4% in November 2008.  Like the Retail Sales, although up, the gain is still well below +17.8% in March 2008 prior to the 2008 Olympics and also below the trend growth rate of 15-20% that prevailed for most of the 2003 to 2008 period.  

Finally, the Producer and Consumer Price YoY Indices  will give an indication of inflation in China. The expectation is for CPI to fall-1.3% versus -1.4% last month. The Producer Price Index is expected to fall by a record 7.4% for the year.  So far inflation continues to remain contained.  However, gains from commodities could cause  a reversal of the trend especially if the global economy does pick up.

For the markets, stronger data than expected would likely help the global stock markets and give commodities a boost.  This has probably contributed to the gains in the commodity currencies as well as perhaps even stock gains over the last few days.

The reaction post the numbers will help dictate the tone for tomorrow.  If the data is already discounted the gains from the stronger economy may cause a reversal of the recent trends.  For example, there may be  profit taking in commodities, stocks and some of the trends seen the currency markets of late.  

Of course, it is impossible to predict what might happen or the market reaction. What is certain, however, is the level of risk in the market increases tonight as a result of the large amount of data and the markets focus on China of late.

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