The week has started off with attention firmly fixed on Chinese data. In the event, second quarter (Q2) growth domestic product (GDP) came in at 6.2% year-on-year (y/y) following a 6.4% increase in the previous quarter, matching market expectations. However, higher frequency Chinese data for June released at the same time looked far better, with industrial production up 6.3% y/y (market 5.2% y/y), retail sales up 9.8% y/y (market 8.5%) and fixed assets investment up 5.8% YTD y/y (market 5.5%).
Although growth in China has slowed to its weakest in many years, this was well flagged in advance and the GDP data is backward looking in any case. The other data released today as well as increases in new loans and aggregate financing data released last week, suggest less urgency for fresh stimulus. Overall, markets will be relieved by the fact that higher frequency data is holding up, but hopes of more aggressive stimulus in the near term may be dashed.
Attention elsewhere this week will focus on data and central banks. After last week’s testimonies from Fed Chair Powell, during which he cemented expectations of a quarter percent from the Fed at the end of this month, attention in the US this well will be on June retail sales data where the consensus looks for a weaker 0.1% m/m increase in headline and ex-autos sales. Further comments from Fed speakers will also garner attention, with Powell and New York Fed President Williams, likely to maintain market expectations of Fed easing.
Emerging Markets central banks will also be in focus, with monetary policy easing expected in South Africa, Indonesia and South Korea as central banks take the cue from the Fed. Declining inflation pressure, weaker domestic growth, will also add support to further policy easing. Stronger currencies in South Africa and Indonesia provide further impetus to cut rates. I expect many emerging market central banks, especially in Asia, to ease policy in the weeks ahead, for similar reasons as above.
Watch me Guest Host on CNBC Asia tomorrow morning from 8-9am Singapore time where I will discuss these and other topics in more detail.
Leave a Reply