China Q4 GDP, Stronger USD in Focus

DOW JONES, HANG SENG, ASX 200, ASIA-PACIFIC MARKET OUTLOOK:

  • China’s Q4 GDP growth is expected to return to the pre-Covid level of 6.1%, marking the only G20 economy to register a positive full-year growth rate in 2020
  • The rising US Dollar is threatening the record-breaking rally for the Dow, S&P 500 and Nasdaq 100 stock indices
  • Upbeat US corporate earnings failed to lift confidence; the ASX 200 index opened lower

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China Q4 GDP, US Earnings, USD, Asia-Pacific Stocks Weekly Outlook:

China’s fourth quarter GDP, alongside industrial production and retail sales data are among the top macro events on Monday. The readings will likely set the tone for Asia-Pacific markets, especially the Australian Dollar and the Hang Seng Index. US markets will be closed on Monday, 18 January for the Martin Luther King Jr Day holiday.

The world’s second-largest economy is expected to register an annualized growth rate of 6.1% in Q4 2020, marking a robust recovery from the Covid-19 pandemic and outshining other major economies. The IMF forecasted that China’s GDP grew 1.9% in 2020, compared to a global contraction of 4.4%. Looking ahead, market participants expect China’s economic growth to accelerate further to 8-9% in 2021, partly due to a lower base in 2020.

China’s economy rebounded swiftly after plunging 6.8% YoY in Q1 2020, thanks to strong fiscal and monetary responses as well as prompt measures to contain the Covid-19 pandemic. This facilitated a fast economic re-opening after initial lockdowns in the spring. Exports were then boosted by strong global demand for medical supplies, equipment and electronics in a time when business activity in many parts of the world was disrupted by viral waves. Domestic consumption has gradually picked up too, although retail sales growth remains slightly below the pre-Covid level.

Chinese industrial production growth in December is expected to recede slightly to 6.9% from 7.0% in November, while retail sales growth is forecasted to expand at a pace of 5.5%, marking a nine-month high. Upbeat figures will likely underpin Asia-Pacific equities, the Chinese Yuan as well as the risk-linked Australian and New Zealand Dollars.

China GDP Growth YoY (%) – Q4 2020 Forecast

Dow, Hang Seng, ASX 200 Outlook: China Q4 GDP, Stronger USD in Focus

Source: DailyFX

Looking back to Friday, all three major US equity indices ended lower as the DXY US Dollar surged to a one-month high of 90.80. Further strengthening in the Greenback may hint at a deeper pullback in global equities as it signals rising demand for safety and discourages emerging market inflows.

US Q4 earnings have fared well, with large banks such as Wells Fargo, JPMorgan and Citigroup beating their EPS forecasts by large margins. Nonetheless, investors still chose to liquidate their stocks on Friday, reflecting fragile market sentiment as the pandemic shows no signs of abating yet while stocks valuations are near two-decade highs. In the week ahead, around 9% of S&P 500 companies will release their results, including Bank of America, Goldman Sachs, Netflix, Procter & Gamble, Morgan Stanley, IBM andIntel. So far in the earnings season, 85% of S&P 500 companies have beaten analysts’ forecasts. Read more on my earnings outlook report.

Sectorwise, 5 out of 9 Dow Jones sectors ended lower on Friday, with 90% of the index’s constituents closing in the red. Energy (-3.56%), industrials (-1.18%) and consumer staples (-0.41%) were among the worst performers, whereas communication services (+0.15%) and healthcare (+0.10%) registered small gains.

S&P 500 Index Sector Performance 1501-2020

Dow, Hang Seng, ASX 200 Outlook: China Q4 GDP, Stronger USD in Focus

Source: Bloomberg, DailyFX

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Dow Jones Index Technical Analysis:

Technically, the Dow Jones index has pulled back slightly from the upper ceiling of the “Ascending Channel” as highlighted in the chart below. The bull trend remains intact and is well-supported by the 20-Day Simple Moving Average (SMA) line. Support and resistance levels can be found at 30,230 (50-Day SMA) and 31,410 (upper Bollinger Band) respectively.

Dow Jones IndexDaily Chart

Dow, Hang Seng, ASX 200 Outlook: China Q4 GDP, Stronger USD in Focus

ASX 200 Index Technical Analysis:

The ASX 200 index is range-bound between 6,575 to 6,770 since late November, as highlighted in the chart below. The upper and lower bound may serve as an immediate resistance and support level respectively. MACD divergence and a narrowing Bollinger Band suggest that upward momentum may be faltering however. The index is also testing its 50-Day SMA, breaking below which may signal a deeper pullback.

ASX 200 Index Daily Chart

Dow, Hang Seng, ASX 200 Outlook: China Q4 GDP, Stronger USD in Focus

Hang Seng Index Technical Analysis:

The Hang Seng index is riding a strong trend and has breached above a 76.4% Fibonacci extension level at 28,315. Breaching this level may open the door for further upside potential with an eye on 29,040 – the 100% Fibonacci extension. The MACD indicator is trending up alongside prices, reflecting strong bullish momentum.

Hang Seng Index Daily Chart

Dow, Hang Seng, ASX 200 Outlook: China Q4 GDP, Stronger USD in Focus

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— Written by Margaret Yang, Strategist for DailyFX.com

To contact Margaret, use the Comments section below or @margaretyjy on Twitter

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