Market Close Mar 05

Markets ease on NPC's muted optimism

Yuan pressured by conservative GDP target; Oil surges after OPEC meet; US payroll awaited

Markets ease on NPC's muted optimism
Delegates listen to Chinese Premier Li Keqiang, lower left, as he gives the national Work Report on Friday (Reuters pic).

(ATF) Hong Kong: Asian markets extended falls after US Federal Reserve chair Jerome Powell indicated he was comfortable with the current spike in interest rates, which dulled the lure of risky assets while oil prices surged after the OPEC+ did not rein in supply limits.

Adding to the gloom, China set a conservative GDP target for the current year at the annual session of National People's Congress. This was contrary to consensus expectations that no growth targets would be set, to underline the continuing importance of a specific goal in shaping the country's economic recovery.

But the renewed focus on mitigating financial risk, a decline in consumption sentiment and rising global bond yields could mark the beginning of a period of consolidation for Chinese risk assets.

Japan’s Nikkei 225 index edged down 0.23%, Australia’s S&P ASX 200 slid 0.74%, Hong Kong’s Hang Seng index dipped 0.47%, China’s CSI300 eased 0.34% and, regionally, the MSCI Asia Pacific index retreated 0.62%.

“China unexpectedly set a GDP growth target, but at a relatively low level compared to the consensus forecasts and our forecast,” said Iris Pang, ING Bank’s chief economist for Greater China, referring to her bank’s forecast of 7% and the street’s 8% consensus.

“There is in fact not much surprise from the government work report except for the super-low GDP target. This makes me feel uneasy, as I don't know what exactly the government wants to tell us about the recovery path it expects,” she said.

Beijing set the GDP target at "above 6%", adding that they would keep the average growth rate over the next five years within a "reasonable" range.

Still the weak level of economic target weighed on the Chinese currency with the yuan hitting a weekly low of 6.4924 per dollar. It recouped losses to trade up 0.1% up at 6.4762 per dollar after the People's Bank of China (PBOC) had earlier set the midpoint at 6.4904 yuan per dollar, 146 pips, or 0.22%, weaker than the previous fix of 6.4758.

“The 2021 growth target is set as “above 6% year-over-year”, far below the consensus forecast of a 8.9% year-over-year real GDP growth in 2021, reflecting the shifting focus from quantity to quality of economic growth,” JP Morgan Asset Management Global Market Strategist Chaoping Zhu said.

“Accordingly, the report highlights that this moderate growth target could help policymakers push forward reforms and achieve a high-quality growth. This implies that more resources will be allocated to push forward long-term initiatives such as environment protection, fiscal consolidation and leverage reduction, so as to boost China’s long-term growth potential.” 

Oil prices surged after the Organization of Petroleum Exporting Countries (OPEC) and its allies maintained supply cuts agreed on for April as they await a more solid demand recovery. West Texas Intermediate soared 1.5% to $64.81 a barrel and Brent crude rose 88 cents to $67.62 a barrel.

US Treasury yields stabilised with the 10-year yield down 1 basis point at 1.55% and the dollar strengthened, rising 0.4% to 91.96 against a basket of currencies which weighed on gold. The yellow metal eased 0.3% to $1,691 per ounce.

Markets will monitor the crucial non-farm payroll data with a Reuters poll showing a likely increase of 182,000 jobs last month after rising only 49,000 in January. Payrolls declined in December for the first time in eight months.

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Also on Asia Times Financial

Asia Stocks

· Japan’s Nikkei 225 index edged down 0.23%

· Australia’s S&P ASX 200 slid 0.74% 

· Hong Kong’s Hang Seng index dipped 0.47%

· China’s CSI300 eased 0.34%

· The MSCI Asia Pacific index retreated 0.62%.

Stock of the day

Chinese banking stocks outperformed the market with hefty gains on a down day, as Beijing’s annual National People’s Congress guidance was interpreted by some that interest rate increases are around the corner. Higher interest rates help steepen the yield curve and improve bank margins. China Construction Bank rose 2.6%, ICBC added 4.5% and Bank of China added 3.2%.

Asia markets China GDP target oil price surges OPEC+ US jobs data dollar/yuan China banks