Will China’s GDP spoil the party?

By Jamie McGeever

(Reuters) – A look at the day ahead in Asian markets from financial markets columnist Jamie McGeever.

The macro and market week in Asia starts Monday with a bang, with a series of leading economic indicators out of China culminating in the second quarter GDP growth data.

How weak has the world’s second-largest economy been lately, and will that be enough to dampen growing optimism that the US economy is heading for a “soft landing”?

A series of Chinese economic indicators for June – investment, retail sales, industrial production and unemployment – will be released on Monday, along with the second quarter GDP report.

A Reuters poll of economists suggests that growth has slowed considerably. The consensus view of a 0.5% expansion in the first quarter is well below the 2.2% quarter-on-quarter growth in the January-March period, which captured the initial rebound after lockdown restrictions were lifted.

Year-on-year growth is expected to reach a more impressive 7.3%, but this is inflated by base effects from the low level of growth in the same period last year.

Any optimism there was at the start of this year has evaporated. Activity slowed, the economy slipped into deflation and investors shunned Chinese stocks, bonds and the currency. Last week, China’s Economic Surprise Index hit its lowest level in a year.

Later in the week, China’s central bank sets its main policy rates at one and five years. A sub-consensus Q2 GDP release on Monday could tip expectations towards further easing.

Beyond China, inflation data from Japan and New Zealand on Friday and Wednesday, respectively, and unemployment figures from Australia on Thursday will be the most important points on the regional calendar for investors this week.

These come amid a fresh wave of bullish sentiment in local and global markets, largely stemming from surprisingly subdued US inflation data. Dollar and US bond yields plummeted, equities and risk appetite took off.

According to Goldman Sachs Financial Conditions Indices, global financial conditions are the loosest since April last year, and emerging market financial conditions are now the loosest since February last year.

No wonder the MSCI World stock index jumped 3.4% last week, its best week since March, and the MSCI Asia ex-Japan index rebounded 5.6%, its best week since November and is finally showing signs of catching up after underperforming all year.

The early stages of the second quarter earnings season in the US also helped to keep the mood positive. Bank of America, Morgan Stanley, Goldman Sachs, Tesla and Netflix are among the big names reporting a busier reporting schedule this week.

Here are the key developments that could provide more direction to markets on Monday:

– China’s GDP (Q2)

– Investment in China, retail sales, industrial production, unemployment (June)

– Indonesian Trade (June)

(By Jamie McGeever; Edited by)

Leave a Comment