Asian stocks struggle after bad China data

Traders in front of a screen with trading numbers in red at the Stock Exchange of Thailand building in Bangkok, Thailand, March 13, 2020. REUTERS/Juarawee Kittisilpa/Files

SYDNEY (Reuters) – Asian stock markets were struggling to maintain even a slight rally on Monday after shockingly weak data from China confirmed the deep damage being inflicted on the world’s second-largest economy.

China’s retail sales for April fell 11.1% on an annual basis, nearly double expectations for a decline, while industrial production fell 2.9% when analysts were eyeing a slight increase. Read more

The risks were to the downside given that 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 an interest rate cut, although on Sunday Beijing allowed an additional cut in mortgage rates for some home buyers. Read more

The news that Shanghai was easing some of the lockdown restrictions provided nothing but a cold respite for investors.

Chinese blue chips (.CSI300) It fell 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 index of Asia Pacific shares outside Japan (MIAPJ0000PUS.) It was still 0.2% higher, although that came after a 2.7% drop last week when it hit a two-year low.

Japan’s Nikkei Index (.N225) It clung to a 0.6% gain, after losing 2.1% last week although a weak yen provided some support for exporters.

Futures settled on EUROSTOXX 50 and FTSE futures contracts. S&P 500 stock futures lost early gains to fall 0.4%, while Nasdaq futures shed 0.3%.

Both are far from last year’s highs, as the S&P has fallen for six straight weeks.

Rising inflation and higher interest rates knocked US consumer confidence to an 11-year low in early May and raised the risks for April retail sales scheduled for Tuesday. Read more

slow growth

The ultra-hawkish Federal Reserve has prompted a sharp tightening of financial conditions, prompting Goldman Sachs to cut its 2022 GDP growth forecast to 2.4% from 2.6%. Growth in 2023 is now seen at 1.6% y/y down from 2.2%.

“Our financial conditions index has tightened by more than 100 basis points, which should create a drag on GDP growth of about 1 percentage point,” said Jan Hatzius, an economist at Goldman Sachs.

“We expect the recent tightening in financial conditions to continue, in part because we believe the Fed will live up to what has been priced in.”

Futures are pointing to a 50 basis point rise in both June and July and rates between 2.5-3.0% by the end of the year, from the current 0.75-1.0%.

Fears that all this tightening would lead to a recession spurred a bond rally last week, which saw 10-year yields fall 21 basis points from peaks at 3.20%. Early Monday, yields slipped again, hitting 2.91%.

The pullback has pulled the dollar back from a two-decade high, but not by much. The dollar index was last at 104.560, close to a peak of 105.010.

The euro settled at $1.0394, after falling to $1.0348 last week. The dollar lost ground against the yen, which appeared to have secured a safe haven offer in the wake of the China data, and fell to 128.88 yen.

In cryptocurrencies, Bitcoin was last up 2% at $3,0354, after touching its lowest level since December 2020 last week following the collapse of TerraUSD, the so-called stablecoin.

In the commodity markets, gold was pressured by higher yields and a strong dollar and was last seen at $1,811 an ounce after losing 3.8% last week.

Oil prices reversed course as dire Chinese data raised demand concerns.

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

Reporting from Wayne Cole. Editing by Sam Holmes

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