Morning Bid China crisis
Morning Bid China crisis
Crisis Looms in China as Economic Indicators Continue to Disappoint
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Aug 16 (ANBLE) – A look at the day ahead in Asian markets from Jamie McGeever, financial markets columnist.
The word ‘crisis’ should always be used responsibly and judiciously when covering financial markets, business, and economics. However, recent developments in the world’s second-largest economy, China, are causing growing concerns. Another string of top-tier data ‘misses’, a shock interest rate cut, and the abrupt announcement that record high youth unemployment data will no longer be published suggest that we might indeed be on the brink of a crisis.
The deepening concern around China’s economy, policy options, and financial markets will undoubtedly weigh heavily on Asian investor sentiment. On Wednesday, investors will closely watch the interest rate decision from New Zealand, as well as the release of the latest manufacturing and service sector ‘tankan’ surveys from Japan. It is not all doom and gloom in Asia, though, as Japan’s economy grew twice as fast in the second quarter as analysts had expected. Nevertheless, it is China’s travails that are currently in the spotlight.
Perhaps even more worrying for investors than the misses on investment, industrial production, and retail sales, or the surprise rate cut, was Beijing’s decision to suspend the publication of youth unemployment figures for an unspecified length of time. With the official rate in June already at a record 21.3%, speculations have emerged that the actual rate could be closer to a staggering 50%.
Adding to the unease, the latest snapshot of Chinese house prices is anticipated to reveal another weak report, further indicating that the country’s property sector is experiencing a genuine state of crisis. In fact, JP Morgan warned that if developer Country Garden were to suffer a full-scale default, it would more than double China’s year-to-date property default tally to $17 billion, making it a total of $100 billion over the past two and a half years.
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The People’s Bank of China may have finally pulled the interest rate lever; however, this move had the expected impact of slamming the exchange rate. The offshore yuan suffered a sharp decline and is now flirting with November’s historic low against the dollar.
In comparison, Japan’s robust GDP data for the second quarter and the surge in retail sales in the U.S. provide a stark contrast to China’s economic woes. The Atlanta Fed’s GDPNow model even projects annualized Q3 growth of an impressive 5.0%.
The repercussions of global stock market declines, Wall Street’s struggles, rising bond yields, and ‘higher for longer’ Fed rate expectations were visibly felt in emerging markets as well. The MSCI Asia ex-Japan index fell for a fourth consecutive day, having only risen twice over the past 11 sessions. Notably, Hong Kong’s mainland property index, which fell 1% on Tuesday, is now down 16% since the beginning of the year.
Key developments on Wednesday that could provide more direction to markets include the New Zealand interest rate decision, as well as the release of China’s house prices for July and Japan’s tankan surveys for August. These events are highly anticipated as investors seek a clearer outlook amid the uncertain economic landscape.
Source: Reuters
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