China GDP Speculation Lifts Risk

Optimism that China can overcome a hard landing put a bid in risk assets and hit the dollar Thursday morning.

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A very specific rumor circulated that China’s first quarter GDP will come in at 9 percent, rather than the expected 8.4 percent, when released overnight.

Whether the rumor is true or not did not matter to traders. The dollar sunk, the euro rose, and commodities-based currencies edged higher. Stocks jumped, copper rose, and oil moved higher.

“I tend to be suspicious of Chinese economic data rumors,” said Marc Chandler, head of foreign-exchange strategy. He said the reason it has impact is because people believe China was close to further easing policy.

China’s Shanghai indexrose 1.8 percent Thursday. Bank lending in China was reported overnight to have surged to the highest amount since January 2011. There was also stronger-than-expected growth in money supply, which rose 13.4 percent in March from a year ago.

Miller Tabak market strategist Peter Boockvar said it’s possible the GDP rumor could have started with a wire service story, quoting a Chinese government researcher. He said the researcher said he thought GDP could be 9 percent for the full year, but 8.4 to 8.5 percent for the quarter.

“What he said was the number is going to be in line tonight, so I can’t really explain what’s going on here,” he said. “Either way, the China news overnight was pretty positive in terms of loan growth, but no one, of course, cares.”

Investors have been watching for the important release of Chinese data Friday morning, including GDP, retail sales, and industrial production.

Joshua Brown, financial advisor with Fusion Analytics, said in an email that even if the GDP number is disappointing, it could be a positive for risk assets, in that it could lead to a cut in lending rates.

Whether China faces a hard landing or not is one of the biggest concerns in markets. Stocks and other risk assets were also helped in early trading by comments from New York Federal Reserve President William Dudley and Fed Vice Chair Janet Yellen, who continued to defend the Fed’s expectation that it will keep rates low through 2014.

The Dow Jones Industrial Average, up triple digits mid-morning, was also lifted by Hewlett-Packard , after a study showed stronger shipments of personal computers early in the year.

The China rumors also coincided with talk from Europe of a big asset-allocation trade out of U.S. Treasurys and German Bunds and into U.S. and German stocks, and other European markets.

“Overnight we also had really positive Australian employment data so that bodes well for the idea the Asian pacific is not as moribund as people thought it was,” said Boris Schlossberg of GFT Forex.

Follow Patti Domm on Twitter: @pattidomm

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