Markets Aug 14

Downbeat China data hurts markets

China recovery loses steam; Australia eyes fiscal support; Gold stabilises

Downbeat China data hurts markets
People wear protective face masks as they cross a street near a shopping complex after an outbreak of the coronavirus in Beijing on July 17, 2020. Photo: Thomas Peter/ Reuters.

(ATF) Asian markets are defensive on Friday after China published data which showed its recovery was starting to flag, but Australian markets bucked the trend after its central bank Governor Philip Lowe said fiscal stimulus was required to support the economy.

China reported a surprise fall in retail sales in July and industrial output was slower than expected underlining the uncertain path ahead after Beijing loosened restrictions as the pandemic spread slowed. But with the economy starting to show signs of stability, the central bank looks unlikely to embark on large-scale stimulus.

“Overall activity growth was largely stable in July, though the recovery in IP and retail sales was slower than expected,” Goldman Sachs analysts said in a note.

“With activity growth and unemployment largely steady, CPI and PPI inflation rising, and the virus increasingly under control without full-scale lockdown, policymakers likely see a lack of strong rationale to loosen their policy stance incrementally for now.”

With the Chinese economy looking inwards for growth, the challenge posed by the flood situation is likely to weigh.

“The damage caused by the recent flooding is evident in the slower retail sales growth in rural areas, and fixed asset investment also fell 9% year-to-year year-to-date in the central area of China, along the Yangtze River where most of the flooding is located,” Iris Pang, ING Bank’s chief economist for Greater China, said.

“We expect there will be reconstruction work when the flood is over, but that could be slow given the persistence of tight social distancing measures in China. We continue to monitor our GDP forecast of 0.5% for the full year for a possible amendment.”

China’s CSI 300 index was flat while Hong Kong’s Hang Seng benchmark was down 0.2%.

'Need for stimulus'

But Australia’s S&P ASX 200 rose 0.64% after the country’s central bank chief said there was a need to provide fiscal stimulus.

“Government policies that support people's incomes, that add to aggregate demand through direct government spending and that make it easier for firms to hire people all have important roles to play,” Lowe said to the House of Representatives Standing Committee on Economics.

Gold prices hovered around $1,950, stabilising after the recent correction and the dollar was marginally weaker against a basket of currencies trading at around 93.26. US Treasuries are firm with the 10-year yield dipping a basis point to 0.70%.

Credit markets remain busy with ICBC Financial, and Vedanta Resources, set to launch bond offerings next week.

Overnight, US politicians failed to agree on an economic relief package, which added pressure on Wall Street. The Dow Jones Industrial Average fell 0.29%, the S&P 500 dipped 0.2%, but the Nasdaq Composite added 0.27.