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Chinese economic growth slows

A series of economic data released Monday suggested the Chinese consumer is still struggling to support economic growth, causing some market participants to call for Beijing to introduce further stimulus measures. In the US, former president Donald Trump survived an assassination attempt at the weekend, which was initially seen as strengthening his chances of being elected in November. Some market participants anticipated gains for assets related to a possible Trump victory as a result, such as those that benefit from higher inflation.

Date
Author
Shane Strowmatt, LGT
Reading time
5 minutes

Chinese market
© Shutterstock

Second-quarter gross domestic product (GDP) came in at 4.7% in China, down from 5.3% in the first quarter and well below analysts’ expectations. Retail sales in the world’s second-largest economy were also weak in June, growing just 2% when compared with the same month last year. Rounding out the bleak picture of the Chinese economy were real estate data that showed new home prices falling at the fastest pace in nine years. Chinese authorities have struggled to prop up the economy despite a series of stimulus measures this year and last as the Chinese consumer remains weak. The country’s real estate crisis as well as concerns about job prospects have put the consumer under pressure. Hong Kong’s Hang Seng Index dropped 1.4% on Monday, while the CSI 300 was trading about 0.2% higher.

Elsewhere in the Asia-Pacific region, Australia’s S&P/ASX 200 was up 0.7%, marking a third day of gains and an all-time high for the index on Monday. In South Korea, the Kospi was trading up 0.2%. Markets in Japan were closed due to a public holiday.

US macro data strengthen case for rate cut

US producer prices increased moderately in June, indicating a continuation of the downward trend in inflation after consumer prices came in much cooler than market expectations last week. The Producer Price Index (PPI) for final demand rose by 0.2% in June, when compared with the previous month and was up 2.6% on the year. Producer prices are closely watched as they provide clues about how future consumer prices could develop as companies pass costs on to end customers. In addition, the University of Michigan Consumer Sentiment Index fell to its lowest level in eight months in July, according to data released on Friday. The preliminary reading of the index fell to 66, well below the median estimate of economists.

In New York, markets interpreted the PPI data as strengthening the case for an interest rate cut by the Federal Reserve in September. Tech stocks came roaring back from losses in the previous session with the Nasdaq-100 trading up 0.6%. The Dow Jones Industrial reached a new high for the first time since May, gaining 0.6% on Friday. The S&P 500 also hit an all-time high, up 0.6% as well.

ECB, inflation data and company earnings this week

This week, macroeconomic releases slow down a bit, but all eyes will be on the European Central Bank (ECB), which makes its next monetary policy announcement on Thursday. Earlier this month, ECB President Christine Lagarde cast doubt on traders’ hopes that the central bank would be able to lower rates at back-to-back meetings this month after initiating its cutting cycle in June. Inflation data is due from the euro area and the UK on Wednesday, as well as from Japan on Friday. The UK also publishes labour market data on Thursday. On the corporate side, investors get their first look at whether tech stocks can live up to the market’s high expectation’s when ASML reports earnings on Wednesday and Netflix publishes quarterly figures on Thursday.

Corporate and macroeconomic calendars

Corporate news in focus: Second-quarter figures from Nordea, BlackRock, Goldman Sachs.

Economic data in focus: Swiss Producer and Import Price Index, German retail sales, Empire State Manufacturing Survey, Federal Reserve Chair Jerome Powell interview.

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Editor: Alessandro Fezzi
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