Global markets waver as Chinese economy slows

Tuesday, 16 July 2019 00:40 - - {{hitsCtrl.values.hits}}

LONDON, AFP: World stock markets wavered Monday on news that China’s economy grew at its weakest pace in nearly three decades, hit by the US trade war.

London’s benchmark FTSE 100 index added 0.2% and Frankfurt’s DAX 30 rose 0.3% but the Paris CAC 40 dipped 0.1%.

Asian equities initially stumbled but then staged a recovery, as traders digested Chinese second-quarter gross domestic product (GDP) numbers, while also debating the depth of an expected US interest rate cut.

China’s economy expanded 6.2% in the second quarter, the slowest 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.

Yet, despite the slowing GDP, the month of June held some bright spots for 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 rose 6.3%, from 5.0% in May, which was the slowest increase since 2002.

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

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

Wall Street turned in another vintage performance on Friday, with a record-breaking close for all three main indices in New York.

There are bets 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.