Market Mind: Will China’s GDP Ruin the Party?

Financial markets columnist Jamie McGeever discusses the outlook for Asian markets.

Asia’s macro and market week kicked off on Monday with a bang, with the release of a host of top economic data from China, culminating in Q2 GDP growth data.

How bad is the recent weakening of the world’s second largest economy, and is it enough to dampen optimism that the US economy is headed for a ‘soft landing’?

On Monday, a number of China’s economic indicators for June, including investment, retail sales, industrial production and unemployment rate, as well as the second quarter GDP report will be released.

A Reuters poll of economists suggests a sharp slowdown in growth. The consensus forecast of 0.5% growth in the first quarter is well below the 2.2% quarter-on-quarter growth in the first quarter after lockdowns were lifted.

The year-on-year growth rate is expected to be even more impressive at 7.3%, but that number is further inflated by underlying effects from the weaker growth in the same period last year.

The optimism at the beginning of the year has faded. Economic activity is slowing, the economy is slipping toward deflation, and investors are shying away from Chinese stocks, bonds and currency. China’s economic surprise index hit a one-year low last week.

The People’s Bank of China will set key one- and five-year lending rates later in the week. If the second-quarter GDP release on Monday reaches sub-consensus, expectations could tip towards further easing.

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

These came amid a new wave of bullish sentiment across domestic and global markets, largely due to surprisingly subdued US inflation data. Yields on the dollar and Treasuries fell, boosting stocks and risk appetite.

The Goldman Sachs Index of Financial Conditions showed global financial conditions the loosest since April, and financial conditions in emerging markets the loosest since February.

No wonder the MSCI World Index rose 3.4% last week, its best week since March. The MSCI Asia ex-Japan index rose 5.6% in its best week since November, finally showing signs of a comeback after an all-year underperformance.

The early stages of the US second-quarter earnings season have also helped keep the mood strong. Big companies like Bank of America, Morgan Stanley, Goldman Sachs, Tesla and Netflix report on busier reporting schedules this week.

Here are the key developments that could give further direction to the market on Monday:

– China GDP (Q2)

– China Investment, Retail Sales, Industrial Production, Unemployment Rate (June)

– Indonesia Trade (June)

(Written and edited by Jamie McGever)