Business

Markets slightly firmer after doubts over slowing Chinese economy

Tuesday, July 16, 2019

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LONDON, United Kingdom (AFP) — World stock markets were slightly firmer Monday, mostly posting modest gains after initial doubts on news that China's economy grew at its weakest pace in nearly three decades, as US President Donald Trump's trade war hit home.

Wall Street opened little changed to weaker after its record-breaking run, with the market still counting on the US central bank to cut interest rates sooner rather than later, despite recent strong jobs data.

Investors were also waiting to see earnings from JPMorgan Chase and the other banks, as well as other major companies such as Netflix, United Continental, and Johnson & Johnson.

In Europe, London's benchmark FTSE 100 index closed 0.34 per cent higher and Frankfurt's DAX 30 put on 0.52 per cent, while the Paris CAC 40 edged up 0.10 per cent.

“It was a day without much movement. The markets are really just waiting for a stronger lead on the macro-economic data front,” Yann Azuelos of Mirabaud France told AFP.

Asian equities initially stumbled but then staged a recovery as traders digested Chinese second-quarter gross domestic product (GDP) numbers.

China's economy expanded 6.2 per cent in the second quarter, the slowest headline reading since the early 1990s, official data showed. The outcome was in line with forecasts and within the government's target range.

“There's no doubt in anyone's mind that the trade war is a major contributing factor here,” noted Oanda analyst Craig Erlam.

BRIGHT SPOTS

Yet, despite the slowing GDP, other figures showed there were some bright spots in the Chinese economy, dealers said.

That handed a partial boost to the mining sector because China is a leading consumer of many raw materials.

Chinese industrial output in June rose 6.3 per cent, from 5.0 per cent in May.

Fixed-asset investment also picked up, rising 5.8 per cent on-year in January-June, from 5.6 per cent in January-May.

China's 1.3 billion consumers also continued to open their wallets, with retail sales growing 9.8 per cent year-on-year in June, up from 8.6 per cent in May.

“The Chinese data, while confirming slowdown fears, seems to be lifting basic resource stocks,” Erlam said.

“A decent rebound in industrial production is naturally driving this, easily exceeding expectations, and along with retail sales and investment figures, arguably indicates that worst fears are not being realised.”

The GDP number nevertheless highlights the negative impact the US tariffs stand-off is having on China, as leaders also try to recalibrate its growth model from exports and state investment to one driven by consumer spending.

Observers pointed out that the weakness raised the chances of further monetary easing measures from the central People's Bank of China, with investors also tracking the progress of the latest trade talks between Washington and Beijing.

FED RATE CUT

Amid concerns about the possible impact, some expect the US Federal Reserve will cut borrowing costs at the end of the month, though there is speculation about how far it will go.

While bank boss Jerome Powell's congressional testimony last week flagged a reduction, data indicating inflation remains reasonably healthy has kept investors guessing.

“The Fed is under pressure to cut the interest rate this year,” noted ThinkMarkets analyst Naeem Aslam.


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