Asian stocks in trouble after terrible Chinese data

Asian stock markets struggled to sustain even a minor rally on Monday after surprisingly weak data from China underscored the deep damage the lockdowns were causing to the world’s second-largest economy.

Chinese retail sales in April fell 11.1% on the year, nearly double the expected decline, while industrial production fell 2.9% as analysts expected a slight increase.

The risks had been on the downside as new bank lending in China hit its lowest level in nearly four and a half years in April.

China’s central bank also disappointed those hoping for rate easing, although Beijing on Sunday allowed mortgage interest rates to drop further for some homebuyers.

News that Shanghai was easing some of its lockdown restrictions offered cold comfort to investors.

Chinese blue chips (.CSI300) lost 0.4% in reaction, while commodity currencies took a hit led by the Australian dollar which is often used as a liquid proxy for the yuan.

MSCI’s broadest Asia Pacific ex-Japan equity index (.MIAPJ0000PUS) was still up 0.2%, although that followed a 2.7% drop last week when it hit a low. two years.

The Japanese Nikkei (.N225) clung to 0.6% gains, having lost 2.1% last week even as a weak yen offered some support for exporters.

EUROSTOXX 50 and FTSE futures remained stable. S&P 500 stock futures lost early gains to fall 0.4%, while Nasdaq futures fell 0.3%.

Both are a far cry from last year’s highs, with the S&P falling for six straight weeks.

Skyrocketing inflation and rising interest rates sent U.S. consumer confidence plummeting to an 11-year low in early May and raised the stakes for April retail sales expected on Tuesday.

A hyper-hawkish Federal Reserve led to a sharp tightening of financial conditions, leading Goldman Sachs to cut its 2022 GDP growth forecast to 2.4% from 2.6%. Growth in 2023 is now estimated at 1.6% on an annual basis, down from 2.2%.

“Our financial conditions index has tightened by more than 100 basis points, which should dampen GDP growth by around 1pp,” said Goldman Sachs economist Jan Hatzius.

“We expect the recent tightening in financial conditions to persist, in part because we believe the Fed will deliver on its promises.”

Futures imply 50 basis point hikes in June and July and rates between 2.5 and 3.0% by the end of the year, up from 0.75 to 1.0% currently.

Fears that all this tightening could lead to a recession spurred a rally in bonds last week, which saw 10-year yields fall 21 basis points from highs of 3.20%. Early on Monday, yields fell again to 2.91%.

The pullback saw the dollar fall from a two-decade high, but not by much. The Dollar Index was last at 104.560 and a short distance from the high of 105.010.

The euro stood at US$1.0394, after hitting a low of US$1.0348 last week. The dollar lost ground against the yen, which appeared to gain a safe haven in the wake of Chinese data, slipping to 128.88 yen.

In cryptocurrencies, Bitcoin last rose 2% to US$30,354, after hitting its lowest level since December 2020 last week following the collapse of TerraUSD, a so-called stablecoin.

In commodity markets, gold came under pressure from high yields and a strong dollar and was last at US$1,811 an ounce after losing 3.8% last week.

Oil prices reversed as dire Chinese data rekindled demand concerns.

Brent lost US$1.22 to US$110.33, while US crude lost 1.04 cents to US$109.45.


Garland K. Long