Latest Headlines, Chinese Growth, US Treasuries Rally, and Geopolitical Tensions

Yesterday, data from China indicated that the economy expanded 4.9% on an annualised basis over Q3. This came 0.5 percentage points above expectations and raised hopes that China may be able to hit their target of (around) 5% growth over the course of 2023. The 5% target for growth represents the lowest in years and comes amid a fragile property sector, elevated levels of municipal debt, high levels of youth unemployment and their post-pandemic recovery following successive lockdowns last year.

Yesterday’s data also indicates that the Chinese economy has grown 5.2% over the first nine months of the year and comes as Beijing have unveiled a series of fiscal support measures to try to support the economy. Central to Xi Jinping’s recent socio-economic aims has been trying to boost sustainable growth away from high levels of debt, shifting focus to consumer facing industries and higher value tech.

Following the release of yesterday’s growth figures, the National Bureau of Statistics of China stated that “We should be aware that the external environment is becoming more complex and grave while the domestic demand remains insufficient and the foundation for economic recovery and growth needs to be further consolidated”.

Yesterday saw US Equities under pressure as investors assessed the latest flurry of earnings and the ongoing geopolitical situation in the Middle East which pushed haven assets higher. For example, while the Dow Jones fell 1%, and the S&P 500 and Nasdaq slipped 1.3% and 1.6%, respectively, treasuries rallied higher. Yields on the US 2-year are now at their highest level in 17-years, having rallied 12bps over the last month to around 5.25%.

Data out this morning indicates that the country continued to be a net seller of US Treasuries over August, with the sell-off taking Beijing’s holdings of US debt to a fresh 14-year low. Some commentators believe that China may be selling US treasuries to raise funds to help prop up the yuan which has come under considerable pressure lately.

Elsewhere, Foreign holdings of US Treasuries rose to their highest level since December 2021, over the same August period. In fact, on an annualised basis overseas holdings of US treasuries were up roughly 2.8%, as countries weigh in on risk sentiment and the Fed’s monetary tightening.

Geopolitical tensions continued to impact oil markets yesterday, with WTI Crude Futures rising some 1.5% over the session to their highest level in two weeks. The prospect of supply side fears were exacerbated by Iran’s calls for countries of the Organisation of Islamic Cooperation (OIC) to place oil embargos on Israel. Presently, OPEC has not announced any plans to hold emergency meetings or take any immediate action. Iran’s comments come as the OIC (which consists of 57 member states) hold an emergency meeting at their head office in Jeddah, Saudi Arabia.

Elsewhere, US crude inventories have showed signs of falling with the EIA indicating that there had been a 4.5m barrel drop in inventories last week. While supply-side fears continue to dominate price action, headlines around Venezuela agreeing to electoral guarantees have led some to speculate on whether US sanctions on the country could ease, potentially leading to an increase in oil supplies.