European stocks rise amid China's GDP slowdown, ADBRI rated as bullish: ASX to rise


European shares rose but Asian markets mixed after China released better-than-expected GDP figures for the December quarter. Wall St closed in observance for Martin Luther King Jr holiday. For stock watch, ADBRI (ASX:ABC) is rated as a buy.

The Australian sharemarket is set to rise after a mixed close around the globe. Market participants digested China’s GDP figures and its central bank cutting interest rates, in a move to support its slowing economy.

China’s GDP slow in December but above expectations

The start of 2022 has been choppy with a story largely driven by global monetary policy and headlines about Omicron, though a mixed market was attributed to data from the world’s second largest economy, China which showed a slowdown in GDP, but came in higher than expected for the fourth quarter. It rose 4.0 per cent year-on-year, easing from a 4.9 per cent growth in the previous period but exceeded expectations of 3.6 per cent.

Additionally, the People’s Bank of China, PBOC did some interest rate cutting and injected money into their financial system.

What is a reverse repurchase agreement?

What I’m going to do is break this down for you to give you a better understanding as to what they have done, and this will help build your understanding for other central banks globally who use this method, like the Federal Reserve. It’s particularly timely given their intention to trim its balance sheet after interest rates lift-off.

The PBOC cut its rate on its one-year policy loans by 10 basis points to 2.85 per cent, the first reduction since April 2020. It also cut the rate on its seven-day reverse repurchase rate, so this is an agreement where the central bank agrees to buy an asset, and sell it back at a future date with an implied current interest rate.

What this does is through the buying of an asset, so let’s say a treasury note, a bond, this adds to the money supply. When they sell it at maturity, the money supply reverts back to its previous level. So in essence, this is a means to increase liquidity into the financial system.

Also, to further help, the PBOC also injected $43.6 billion (200 billion yuan) into the economy. This comes in the backdrop of a country which has a zero-Covid policy, and a property market slump.

What risk could this pose for the property sector & coal?

Linking this back to our iron ore miners, it does pose some risk amid this property downturn.

Chinese authorities have stood by the principle of "housing is for living in, not for speculation", and they are aware of this, and do have the power to step in, if need be. The key point is that they do not want institutions creating distortions.

Also, in the bigger scheme of things, China’s property sector is the number one contributor to global GDP as per Rogoff and Yang as seen in the graph below, with economists predicting stability in this sector by midyear.

Keep this at the back of your mind as Rio Tinto (ASX:RIO) has just released its quarterly update this morning, which I will cover later.



Figures around the globe

Wall St has a public holiday so we will look at the European numbers. They closed higher amid this news. Paris added 0.8 per cent, Frankfurt added 0.3 per cent and London’s FTSE gained 0.9 per cent.

On the London Stock Exchange, BHP rose 1.4 per cent, Rio added 0.02 per cent, BP gained 1.3 per cent and Shell closed 1.3 per cent higher.

Asian markets closed mixed. Tokyo’s Nikkei rose 0.7 per cent, Hong Kong’s Hang Seng lost 0.7 per cent and China’s Shanghai Composite closed 0.6 per cent higher.

Yesterday, the Australian sharemarket closed 0.3 per cent higher at 7,417, after lunchtime, the choppiness eased after market participants digested China’s GDP figures.

SPI futures

Taking all of this into the equation, the SPI futures are pointing to a rise of 0.3 per cent.

Local economic news

ANZ and Roy Morgan are set to release their weekly consumer confidence figures.

Stock watch

Our weekly stock to watch this week is ADBRI (ASX:ABC). David Thang, Senior Private Wealth Adviser at Sequoia (ASX:SEQ) rates ADBRI as a buy. From a technical angle, ADBRI Limited is bullish for a number of reasons.

Since printing a recent high of $3.87 in August 2021, weakness in share price followed, which resulted in the circa 29 per cent decline over a four month period. Positively, a zone of support was respected at the $2.75 to $2.80 region in December 2021 as shown by the orange horizontal line and previous support witnessed in January and February 2021. Though it is still early days, this could potentially mark the beginning of a double bottom formation, which is a positive signal.

Should buyers remain in control over the months ahead, then a broader advance is on the cards as highlighted by the blue rectangle.

Shares in ADBRI (ASX:ABC) closed 0.2 per cent higher at $2.99.



Ex-dividends

There is one company going ex-dividend today. Insurance company Tower (ASX:TWR) is paying 2.04 cents unfranked.

Commodities

Iron ore has lost 2.2 per cent to US$124.00. Its futures are pointing to a rise of 0.4 per cent.

Gold added $2.40 or 0.1 per cent to US$1,819 an ounce. Silver was up $0.12 or 0.5 per cent to US$23.04 an ounce.

Oil gained $0.48 or 0.57 per cent to US$84.30 a barrel.

Currencies

One Australian Dollar at 8:15 AM has weakened since yesterday buying 72.13 US cents (72.25 US cents), 52.85 Pence Sterling, 82.64 Yen and 63.23 Euro cents.

Disclaimer

The views, opinions or recommendations of the commentators in this presentation are solely those of the author and do not in any way reflect the views, opinions, recommendations, of Sequoia Financial Group Limited ABN 90 091 744 884 and its related bodies corporate (“SEQ”). SEQ makes no representation or warranty with respect to the accuracy, completeness or currency of the content. Commentators may hold positions in stocks mentioned. The content is for educational purposes only and does not constitute financial advice. Independent advice should be obtained from an Australian Financial Services Licensee before making investment decisions. To the extent permitted by law, SEQ excludes all liability for any loss or damage arising in any way including by way of negligence.

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