China beating GDP estimates caused a rally in Asian shares and provided some relief around the globe. The reading of 6.4% growth was flat quarter over quarter and beat the 6.3% estimates. This all sounds like good news for the global economy stabilizing and will provide the Chinese government with the ability to scale back on stimulus. The larger picture shows that the stabilization of growth came from the real estate sector (construction, white goods, etc.) which are partially a result of the lowering of the reserve requirements for banks. Local governments were also given a near 60% increase in special purpose bonds this year which will contribute to growth.
Concerns come into play when you look at the longer term horizon and ow the Chinese government will cope with slowing growth year over year. The current process of adding more stimulus to the markets has, and will continue to work, but due to the rising concerns over debt in the country, the government will be less likely to resume the financial crisis era levels of assistance.
Once again when determining the reliability of the recovery we had this year we need to look at the debt markets for signals of how stable and long it will last. Equities will be supported by the strength in the lending market or be forced to adjust to the limitations of debt fueled growth.
Today the US Jobs numbers come out for March. Estimates are around 180k jobs being created, which is strong coming off the back of a 20k increase last month. Markets will be looking at how this is revised to help make a determination of whether the global slowdown fears are past us and there is room for more upside in the markets. Since the start of the year markets have rallied at signs of growth returning not just to the US but globally.
The market staged a great recovery from the sell-off late last year, now that we are back to the levels we saw before the drop, growth is going to influence the markets more than recovery. If this growth trend continues and the Fed stays in its wait and see stance, the markets could have the potential for new highs. With markets getting optimistic, there is potential for some upsets, so the approach to adding to your positions should remain measured, and cash should stay on hand.