Though Chinese data has been disappointing, but it is important to look at it in context, says Nick Parsons, head of markets strategy (Europe) of National Australia Bank. There was a report from an auditor that the Chinese debt may go out of control.
Talking to CNBC-TV18, Parsons says, the figures were a little disappointing, but the actual size of misses was very small.
But psychologically, for a market that was already prone to the defensives, they take on much greater importance. "As sentiment is so negative and cautious, it is very easy for markets just to keep trailing on the lower side." he told CNBC-TV18
Here is the edited transcript of his interview with CNBC-TV18
Q: What happened? We were doing fine an hour ago?
A: I think fine might be a little bit of an exaggeration. Europe did open steadily, but we have seen selling pressure on the S&P Futures on Globex, as well as in European markets. What is noticeable is that the DAX index in Germany has now given up its entire year-to-date gains within the last 10 minutes.
We often find a situation when markets give up all their gains, and begin to move into the negative, then investors rush away from them. They rush to capital preserving. They were making money, those profits disappear and then it is about capital preservation. For me, the trigger of the DAX moving to flat for the year was potentially very significant. That's the one thing I would highlight here.
Q: What’s the call on this Chinese data, which has been really worrying a lot of investors? This morning also, there was a report from an auditor in terms of Chinese debt going out of control. Is the market worried about that more or about what has been happening in Cyprus?
A: It is important to put Chinese data into some sort of context. Yes, the figures that we have seen over the last few days were a little disappointing relative to expectations.
But the actual size of the misses was very small. Gross domestic product (GDP) came in at 7.7 versus 8.0. Industrial production is at 8.9 versus 10.0, and fixed investment at 20.9 against 21.3.
In the greatest scheme of things these are statistically insignificant misses, but psychologically for a market that was already prone to the defensives, they take on much greater importance.
I think the key here is that the damage is being done by sentiment rather than by fact.
But because sentiment is so negative and so cautious, it is very easy for markets just to keep trailing on the low side. So data misses are data misses, earnings misses in a corporate space are just seen as earnings misses.
But investors at the moment are not looking at absolute numbers, so much as whether it is a beat or a miss, and if it is a miss it is particularly bad.