Very weak China data heightens slowdown fears.

Equities 8 minutes to read
Saxo Be Invested
APAC Research

Summary:  The breather provided by tech and growth led rallies in the U.S. is dampened by weakness in China’s credit, industrial production, fixed asset investment and retail sales data. This Friday’s Japan nationwide CPI is likely to inform if the recent strength in the Japanese Yen against dollar and other crosses has more to go.


What’s happening in markets?

U.S. equity market rebound improves the tone for the start of this week. Having finished a six weeks in a row of falling, S&P500 and NASDAQ 100 managed to finish last Friday with 2.4% and 3.7% gains respectively.  Tech and growth outperformed value stocks.  The Philadelphia Semiconductor Index gained 5%. The market is taking a breather in the midst of a bunch of negative factors including a hawkish Fed, persistent inflation and global growth slowdown or even recession fears. 

Australian dollar fell below 0.69 after weak China data.  Following the rally from last Friday, AUD initially rallied to 0.696 but reversed after China released declines in April industrial production and retail sales, triggering fear of further retracement of industrial metal prices. 

Mainland China and Hong Kong stocks pared early gains on weak China data.  Hang Seng Index (HSI.I), Hang Seng TECH (HSTECH.I) and CSI300 (000300.I) opened higher on news that China having cut the mortgage interest rate floor for first-home buyer and optimism about a gradual lift of lockdown in Shanghai.  The markets lost momentum as China released that industrial production fell 2.9% and retail sales fell 11.1% YoY in April, both being worse than market expectations. 

India bans export of wheat that sent wheat futures up more than 5% in price.

What to consider?

China’s credit data was much weaker than expectation in April.  New aggregated financing fell sharply to RMB910 billion in April (consensus: RMB2,200bn; March: RMB4,653 bn).  The growth of outstanding aggregate financing dropped to 10.2% YoY in April from 10.6% in March. New RMB loans slumped to RMB 645 billion (consensus RMB1,530 bn; March RMB3,130bn).  Mortgage was weak with outstanding mortgage loans contracted RMB61bn.

China cut the floor of mortgage rates.  The People’s Bank of China (PBoC) and the China Banking and Insurance Regulatory Commission (CBIRC) jointly announced a cut of 20bps of the floor mortgage rates for first-home byers to 20bps below the 5-year long-term prime rate (LPR which is currently 4.6%).  In other words, the mortgage floor is reduced from 4.6% to 4.4%.  However, most banks are currently charging a premium to the LPR and the average mortgage rate for first-home buyers is about 5.2%.  The impact of the cut of the floor will depend on if banks are willing to reduce the premiums that they charge the home buyers.

The PBoC keeps its policy rate unchanged.  In setting its policy 1-year Medium-term Lending Rate today, the PBoC keeps it unchanged at 2.85% despite some analysts have called for a cut after the weak April credit data.  It is our view that the room for the PBoC to cut rates is limited. 

China’s April industrial production, retail sales and fixed asset investment were weaker than market expectations.  April industrial production fell 2.9% YoY (consensus +0.5%, March: +5%).  The weakness was led by the manufacturing sector which declined 4.6% YoY in April.  Passenger car production plunged 43.9% YoY.  The mining sector’s growth also slowed to +9.5% YoY in April from 12.2% in March.  Processed materials such as cement and steel products slumped 18.9% and 5.8% YoY respectively.   Fixed asset investment came at +2.3% YoY in April, down from March’s 7.1% YoY.  Although the Chinese authorities are pushing for infrastructure construction, the April data in infrastructure investment growth slowed to +4.3% YoY from March’s +11.8% YoY.  It the above is not bad enough, April retail plunged 11.1% YoY (consensus -6.6%; March: -3.5%).  All in all, the bunch of economic data from China for April was very weak.

Japan’s PPI rose faster in April at the rate of 10.% YoY (consensus +9.4%; March revised to +9.7% from +9.5%).  Core PPI came at +1.2% YoY (consensus +0.9% from +0.8%).  Japan is releasing nationwide CPI data on Friday.  Bloomberg survey has 2.5% for headline CPI and 2.0% for CPI ex fresh food.  The CPI data is the focus of the market and may shape the expectations about BoJ’s stance on monetary policy. 

Shanghai’s Covid situations have improved with 938 new cases for Sunday, the first time falling below 1,000 since March 23.  It was also the second day that the municipality reporting no new cases outside quarantine.  Shanghai is gradually allowing some stores to open for business and expects to gradually resume public transportation from May 22.

A leading Chinese Communist Party ideology publication, QSTheory publishes in its portal a speech from President Xi which calls for common prosperity, redistribution of income, regulating capital’s predatory behaviours and monopolistic activities

Potential trading ideas to consider?

USDJPY may have more to the downside (127) in near-term.

Key economic releases this week:

  • Tuesday: U.S. Retail Sales, U.S. Industrial Production
  • Wednesday: U.S. Housing Starts & Building Permits; Japan GDP
  • Friday: Japan nationwide CPI

Key earnings release this week:

  • Monday: Meituan (03690)
  • Tuesday: JD Logistics (02618); JD.COM (09618)
  • Wednesday: Tencent (00700); Singapore Airlines (SIA)
  • Thursday: Xiaomi (01810)
  • Friday: NIO (9866)

 

For a global look at markets – tune into our Podcast

 

Quarterly Outlook

01 /

  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15
2900
Hellerup
Denmark

Contact Saxo

Select region

International
International

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

This website can be accessed worldwide however the information on the website is related to Saxo Bank A/S and is not specific to any entity of Saxo Bank Group. All clients will directly engage with Saxo Bank A/S and all client agreements will be entered into with Saxo Bank A/S and thus governed by Danish Law.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.