Oil And China. Because What Else, Right?

It’s Monday. Hell yeah!

Let’s start in China, because… well… because where else, right?

We got some data overnight, and it all missed, although not dramatically. Here’s the quick rundown:

  • CHINA APRIL RETAIL SALES RISE 10.7% Y/Y; EST. 10.8%
  • CHINA APRIL INDUSTRIAL OUTPUT RISES 6.5% Y/Y; EST. 7.0%
  • CHINA JAN.-APRIL FIXED INVESTMENT RISES 8.9% Y/Y; EST. 9.1%

CHinaFai

Goldman isn’t too worried:

Although April sequential activity growth weakened from March level, it should be recognized that the level of growth in March was exceedingly strong, consistent with near double digit level of real GDP growth. March and April average growth is still at a decent level. While it is understandable that the market has been concerned about growth slowdown and market weakness amid policy tightening, the latest April credit data which were well above market expectations should alleviate these concerns as it shows the authorities are also highly concerned about these risks in a politically very important year. Having said that, we do not view the change in policy stance as a complete U turn from a tightening bias to a loosening bias, but only a change in terms of the intensity of tightening.

And it’s pretty much the same story no matter who you ask. Basically, growth is slowing, but not enough to derail the deleveraging effort which is kind of circular because, you’re reminded, the deleveraging effort is itself all but guaranteed to derail growth.

“All the data sends the same message: The economy slowed down meaningfully in April,” said Larry Hu, head of China economics at Macquarie Securities Ltd. in Hong Kong. “But given that growth is still fine, in the second quarter policy makers will still focus on reducing financial risk.”

“Chinese growth appears to be moderating, in line with the central bank’s tweaking of market interest rates slightly higher,” said Callum Henderson, Managing Director, Global Markets, Asia Pacific at Eurasia Group in Singapore. “This is good news for China as growth should be relatively strong and solid heading into the 19th Party Congress – and most likely will be. However, it suggests a modest correction going forward in the assets of those countries that export to China heading into the second half.”

Meanwhile, there’s oil, which is up pretty nicely on the heels of a joint presser in Beijing with Khalid Al-Falih and Alexander Novak. Here are the high points:

  • SAUDI, RUSSIA ENERGY MINISTERS MAKE JOINT STATEMENT IN BEIJING
  • AL-FALIH: OIL INVENTORIES DECREASING W/O SHOCKS TO MARKET
  • RUSSIA, SAUDI SEE OIL-CUT DEAL WORKING, INVENTORIES DECREASING
  • AL-FALIH: OIL CUT DEAL NEEDS TO BE EXTENDED
  • AL-FALIH: END OF DEAL SHOULD BE 1Q 2018
  • AL-FALIH: THERE’S ‘GENERAL CONSENSUS THIS IS THE RIGHT APPROACH
  • AL-FALIH: DECISION TO BE MADE AT MAY 25 MEETING
  • RUSSIA, SAUDI ARABIA FAVOR EXTENDING OPEC DEAL FOR 9 MONTHS
  • RUSSIA, SAUDI ARABIA FAVOR EXTENDING OPEC DEAL TO END-1Q 2018

There’s not a whole lot new in there and indeed it comes on the heels of a report Sunday that indicated Oman’s Oil Minister Mohammed Al Rumhy confirmed OPEC members and allied producers have a preliminary agreement to extend the cuts, but nevertheless, it was enough to send oil higher.

OilWTI

“The Saudi and Russia comments are supporting here in the short run,” Michael Poulsen, analyst at Global Risk Management said on Monday morning, adding that “it will be interesting to see whether you get a fait-accompli on the 25th or if they do something completely unexpected.” That’s pretty amusing. Obviously, if they back out of extending the agreement now, the bottom would fall completely out for crude.

Meanwhile, the dollar is still largely on the back foot after weak data to close out last week. Commodity currencies were underpinned by the news in crude.

PetroCCY

Asian markets were mostly higher, Europe is mixed:

  • Nikkei down 0.07% to 19,869.85
  • Topix down 0.04% to 1,580.00
  • Hang Seng Index up 0.9% to 25,371.59
  • Shanghai Composite up 0.2% to 3,090.23
  • Sensex up 0.4% to 30,315.80
  • Australia S&P/ASX 200 up 0.03% to 5,838.40
  • Kospi up 0.2% to 2,290.65
  • FTSE 7446.42 11.03 0.15%
  • DAX 12743.62 -26.79 -0.21%
  • CAC 5392.60 -12.82 -0.24%
  • IBEX 35 10905.20 8.20 0.08%
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