Dow – Soft Chinese data, strong US consumer

• Chinese economy slowly recovering
• US retail sales perform strongly in December
• Is a correction underway in the Dow?

Chinese consumer activity remains a point of weakness for the economy

The Chinese data wasn’t great, although again it’s not the end of the world either.

Unemployment unexpectedly crept higher to 5.1%, while GDP in the fourth quarter rose to 5.2%, marginally lower than expected. Retail sales were arguably the biggest disappointment, slipping back to 7.4% but none of the data is a complete shock.

The Chinese recovery is likely to be bumpy because of the nature of how the slowdown has occurred. Consumer confidence is on its knees and unlikely to bounce back quickly or easily, so retail sales figures will probably remain volatile.

The economy growing more than 5% is arguably the most important thing even if a stronger consumer would ultimately be the goal.

US economy in a position to thrive while others hope to dodge recession

The US economy really is in a world of its own, not just displaying the kind of surprising resilience that some of its peers have, but performing strongly despite interest rates being above 5%.

And at the same time, the labor market is no longer red hot but still warm and inflation is quickly falling back to target which will enable the Fed to start cutting rates soon.

The latest impressive report came from the retail sector, where sales rose 0.6% in December, compared with a month earlier, while core sales were up 0.4%.

In both cases, the performance was 0.2% above estimates and suggests that going into 2024, while others are flirting with technical recession, the US economy is well positioned to enjoy a strong year.

Is the Dow in a correction?

The Dow may have entered into a correction phase, albeit one in which the initial move lower has been very gradual.

Dow Daily

Source – OANDA

It initially broke below the rising trend line at the end of last year but since then, rather than extend lower, the move has been more like a consolidation.

As you can see on the 4-hour chart below though, in that consolidation a double top formed, the neckline of which is now being tested. The index has traded below briefly but we haven’t yet seen a significant breakout. If it does, it will be interesting to see if the correction accelerates.

Dow 4-Hour

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