Markets Sep 15

China data lifts the region

RBA minutes stokes stimulus hopes; China retail sales turn positive for first time after pandemic; Primary bond market activity elevated 

China data lifts the region
An employee works at a production line manufacturing optical fibre cables at the Zhejiang Headway Communication Equipment Co factory in Huzhou in Zhejiang province, China in May 2019. REUTERS/Stringer.

(ATF) Chinese stocks led the region on Tuesday with a rally after data from the National Bureau of Statistics showed economic growth in August accelerated with gains in output, retail sales, and investment.

Japanese stocks underperformed, still reeling from a Tankan survey which showed Japan's manufacturers remained pessimistic for the 14th straight month in September. This points to a painfully slow recovery for the coronavirus-stricken economy.

Meanwhile, Australian stocks were flat after the Reserve Bank of Australia minutes said the virus-induced downturn has not been as severe as expected and indicated that monetary authorities wish for a weaker currency.

“They considered it likely that fiscal and monetary support would be required for some time given the outlook for the economy and the labour market,” the minutes said. “While members noted that the Australian dollar was broadly aligned with its fundamental determinants, a lower exchange rate would provide more assistance to the Australian economy in its recovery.”

China’s industrial output picked up to 5.6% from 4.8% on year, versus an expected 5.1%. Fixed asset investments in August improved to 7.6% on year from 6% in July while retail sales turned positive to 0.5% from -1.1%.

“A tightening labour market and revival in consumer confidence suggests that the recovery in services activity has further to run,” said Julian Evans-Pritchard, senior China economist at Capital Economics. “Meanwhile, growth in industry and construction is likely to remain strong since fiscal spending is set to be ramped up further during the rest of the year and the recent surge in industrial profit growth has also boosted the prospects for manufacturing investment. Taken together, the economy is on track to return to its pre-virus growth rate before the end of the year.”

China’s benchmark CSI 300 rose 0.57%, Hong Kong’s Hang Seng index climbed 0.62% and Australia’s S&P ASX 200 was flat and off the lows following the RBA minutes, which raised hopes of additional stimulus. 

But that also underlined the downbeat outlook for the economy in the current year.

“We forecast the Australian economy to shrink 6.4% through 2020, before rallying strongly next year. Growth in 2021 is expected to reach 5% by year-end, slowing to a still strong 3.2% through 2022. Even with the strong rebound in 2021, we don’t expect GDP to return to its pre-pandemic level until the third quarter of 2022,” ANZ economists said in a note.

Asian credit markets were flat with the Asia IG index unchanged at 57/58 bps. The primary market activity is frenetic with deals like AVIC International’s 10year bonds , Beijing Ent green bondsHenan Water’s 5-year bondsChina Three Gorges dual tranche offeringTingyi Holding’s new mandateTimes China’s new bond offering, and Tongyang Life’s 30-year bond.