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CHINA GDP & SPX

04/15/2013

Sunday evening, April 14, 2013, first quarter GDP for China (Fig 1.1) was reported at 7.7%, below consensus estimates for 8% growth and the 7.9% reported for the fourth quarter of 2012. The absence of a strong growth rebound will keep the materials sector (Fig 1.2) under pressure. Investors should continue to allocate to materials at underweight.
 
Also reported this weekend:
 
•  Industrial Production +8.9% in March, below consensus estimates for +10.0% and last month’s +9.9%
•  Fixed Asset Investment +20.9% in March, below consensus estimates for +21.3% and last month’s +21.2%
•  Retails Sales +12.6% in March, better than last month’s +12.3 and matching consensus estimates for +12.6%
 
Chinese policy makers are currently in a challenging position, thus making it difficult for investors to anticipate the resurrection of strong China growth.  On one hand, benign inflation and tepid growth suggest not only continuing with easy monetary and fiscal policies, but additionally considering a small stimulus package. However, I expect that would be difficult given the stated concern of Chinese officials regarding rising property prices. Once again, the evidence reported from China last evening suggests U.S.-centric opportunities remain most favorable.
 
Within the Q2 2013 Playbook “The Short Squeeze of Pessimism” I highlight the technical significance of 1530.94 for the S&P 500® Index (SPX). For those seeking a point of reference slightly closer to home, I offer a close below 1570.25 (Fig 1.3), the closing price on Tuesday April 2, 2013. That level is consistent with the “ceiling to floor” formation I tend to focus on. It provided minor resistance for the SPX in the early days of April until the post-March unemployment report price action advanced the SPX above that ceiling, transitioning 1570.25 into a floor of support.   
 
 
Fig 1.1 China GDP June 2008 to Present

Source:  Bloomberg
 
Fig 1.2 Materials Sector SPDR Fund ETF

Source:  Bloomberg
 
Fig 1.3 S&P 500® Index (SPX) Technical Formation Support Levels 

Source:  Bloomberg

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