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Market news - 25 January 2019

by  Niloofar Rafiei  |  25 Jan 2019


  • China reported its slowest rate of growth since 2009 in Q4, +6.4% year on year, but in line with expectations. Detractors of growth in December were exports (-4.4% year on year) and weak automobile sales growth. There were some positive surprises in industrial production and retail sales. Industrial production increased 5.7% year on year in December (November: +5.4%, consensus: 5.3%), driven by transport equipment and electrical machinery, whilst retail sales increased 8.2% (November: +8.1%). Economists are expecting the current rate of slowdown to continue into 2019, although increased monetary and fiscal stimulus will likely prevent a disorderly slowdown in China.


  • The euro composite PMI fell for the fifth consecutive month in January, from 51.1 to 50.7, against consensus of an increase to 51.4. The manufacturing PMI dropped to 50.5 (from 51.4) and the services index fell to 50.8 (from 51.2). France saw the sharpest decline in survey results, with the composite falling further into contractionary territory – to 47.9 (December: 48.7). Germany saw a slight improvement in the composite, from 51.6 to 52.1, driven entirely by the services sector, as manufacturing growth remains subdued due to disruption in the auto sector.
  • The European Central Bank’s Banking Lending Survey showed marginal easing of credit standards for enterprises and households in December, thus a positive environment for loan growth. Italy was the only exception to the rule, which saw a marked tightening in credit standards, driven by banks’ lower risk tolerance levels, cost of funds and balance sheet constraints. Net demand continued to increase in the fourth quarter, but banks expect some moderation in demand over the next three months. Low interest rate levels and financing needs for spending on durable consumer goods were the main contributors to the increase in demand, mainly coming from Germany, Italy and the Netherlands.
  • Equity market performance remains extremely robust, with the earnings announcements generally providing the green light for a wave of buying of the stock. In contrast to the Q1 2018 earnings season, which proved the catalyst for a market sell-off as investors feared it would prove the “high water-mark” for earnings, Q1 2019 seems generally to be perceived as marking the trough.
  • Central bank dovishness is also providing a tailwind, with the European Central Bank meeting this week the latest example. Although the ECB has not yet intimated that they will extend the TLTRO lending programme, this is a reasonably likely probability at the March meeting. They did emphasise that the balance of risk to growth is decidedly to the downside and the euro money markets have all but priced out the possibility of the commencement of rate hikes this year.