Market Analysis 04-15-2013
This week began with a sharp drop in the markets since the start of the first day, after news that China's economy is slowing. And gold suffered a historic fall in value as anticipated Soros.
Tomorrow Tuesday we have a wave of U.S. economic data early, so we can expect a day of heavy movements.
China's economy is slowing after experiencing an expansion of its Gross Domestic Product (GDP) of 7.7% during the first quarter. The disappointment was total in the financial markets. Experts expected that China's GDP grew by 8% in the first three months of 2013, after the downturn experienced during 2012.
Meanwhile the government of China, tried to justify the disappointing results directly accusing the European crisis and the sluggish U.S. growth. But this economic cooling also has important internal causes. The government also said that this growth "is low given the global and national situation" and it will be good for "the corporate restructuring and industrial upgrading." However, if we ignore the political discourse and focus on the numbers, data production and investment were also disappointing.
Of course China's numbers compared to the rest of the world are good, but what worries the market is the economic slowdown.
Factory production levels fell reaching its lowest level since August 2012, and at that time the market panicked and the exchanges dropped.
Nor should we overlook the fact that retail sales had unexpected results for the experts, with a growth of 12.6% over the past month. Chinese households are not increasing their domestic consumption and that is worrying.
The renowned economist Nouriel Roubini said "There is still a distinct possibility of a hard landing for the Chinese economy." Roubini said that China's economy could grow by 6.5% next year and fall "even below that mark in the next few years," he said.
"China can not rely on exports as its growth potential," he explained as he said that with a population of 1300 million people "there's more than needed to increase domestic demand."
Gold is falling and has its biggest drop since 1980
The China effect was felt in the stock prices, commodities and gold, which fell 9.3% today in New York, its biggest drop since 1980.
Gold gave continuity to heavy the losses from last week, when it fell about 5%, so that it has a cumulative fall of over 20% from its high of 2011.
Another source of downward pressure was the possibility for Cyprus to sell some of its gold reserves to finance part of the European rescue.
As we said last week the gold ceased to be a stable investment to the vagaries of the crisis, although this does not eliminate the fact that gold is still a safe haven, though expensive.
Recall that gold prices rose nearly 12 years in a row against the dollar, however it is not expected a correction so strong.
The massive drop was spread to all raw materials. In the case of silver, their contracts maturing in May plunged 11% today to be at $23.36 an ounce, its lowest level since October 2010.
Oil has not been saved since Texas crude for May delivery was down more than 2% and was trading below the symbolic barrier of 90 dollars a barrel for the first time since last December.