Recent economic indicators from China show better-than-expected growth, notably in retail sales and fixed asset investment. Germany’s agreement on significant spending is expected to boost growth, though inflation may pose challenges. Meanwhile, U.S. equities are under pressure from declining consumer sentiment, with rising gold prices amid geopolitical tensions. Fed’s upcoming actions remain a focal point for market participants.
Recent data from China revealed encouraging developments, as fixed asset investment unexpectedly accelerated in February. Furthermore, while industrial production growth experienced a smaller than anticipated slowdown due to the Chinese New Year break, retail sales increased by 4%. Nonetheless, the unemployment rate rose, raising concerns regarding the ongoing property crisis and declining birth rates, despite a surge in Chinese equities led by AI. The Chinese government has committed to providing additional support to stabilize financial and property markets, enhance wages, and address population decline. As of the morning, the Hang Seng Index increased by 0.70%, whereas the CSI 300 index has shown some hesitation after last Friday’s nearly 2.50% jump, awaiting further announcements from authorities. Although oil prices initially rose on the prospects of Chinese stimulus, gains were eventually lost due to the impact of the trade war and global growth concerns.
In Germany, Friedrich Merz reached a significant agreement with the Greens to unlock a EUR 500 billion debt-financed spending package aimed at infrastructure and defense. This development has driven German yields higher, with the 10-year bund yield approaching 2023’s peak. The euro garnered support as expectations rose that this extra spending would enhance economic growth and productivity in Europe. However, the potential for increased inflation could necessitate a more stringent policy from the European Central Bank, which might positively influence the euro’s value. Consequently, the EUR/USD is targeting the psychological mark of 1.10, while the EUR/GBP is testing its two-year descending channel amid improved economic forecasts for continental Europe, in contrast to the deteriorating outlook in the UK. Recent data indicated a decline in UK industrial production, with January GDP growth turning negative, further compounded by government tax increase plans and rising gilt yields. The Bank of England is anticipated to keep interest rates unchanged, though the GBP maintains a positive outlook against the dollar.
The European Stoxx 600 index showed resilience near its 50-day moving average last week, whereas the FTSE 100 rebounded above its 50-day level after previously falling below this threshold. Conversely, the S&P 500 entered correction territory following a notable selloff. While Friday’s trading appeared favorable for U.S. equities, with an influx of dip-buyers, broader market sentiment remains concerning due to plummeting consumer confidence and rising inflation expectations. Given these factors, the rebound may not signify a sustainable recovery, with U.S. equities potentially facing further declines. Market attention is now fixed on the Federal Reserve, which is expected to maintain the current interest rates. Jerome Powell’s comments may clarify the Fed’s approach to tariffs affecting U.S. economic prospects. Amid these developments, gold has reached unprecedented levels, trading above $3,000 per ounce, with projections suggesting it could rise to $3,500 amidst geopolitical tensions.
This report has been prepared by Swissquote Bank Ltd and is intended solely for informational purposes. It should not be interpreted as a solicitation or offer to trade any currency or financial instrument. The opinions expressed may vary and are subject to change without notice. Swissquote Bank Ltd holds no obligation to update this information, which should not be considered a substitute for personal judgment.
In summary, recent economic data from China indicates a mix of growth and challenges, with the government pledging support to mitigate issues related to the property market and declining birth rates. Meanwhile, Germany’s substantial infrastructure spending agreement is expected to positively influence the euro despite inflation concerns. Lastly, U.S. equity markets face downward pressure, compounded by consumer sentiment issues, while gold prices soar amid geopolitical uncertainties. All eyes will be on the Federal Reserve’s upcoming decisions regarding interest rates and economic policies.
Original Source: www.fxstreet.com
