China data weighs on markets
The worse-than-expected economic data from China overnight set the tone for the markets today. The second-largest economy in the world posted retail sales, industrial production and fixed asset investment updates, that all undershot economists’ forecasts, and showed lower growth on the previous month. In the past few weeks, we have seen several reports from China which suggests the country’s economic recovery is moving down a gear. The timing is poor to say the least, considering the Beijing authorities are in the process of imposing tighter restrictions on certain industries.
Stock markets in Asia lost ground overnight, hence why the FTSE 100 and the DAX are down today. It is a similar situation on Wall Street, as the S&P 500 and the Dow Jones are offside. Equity markets in Europe and the US have been pushing higher recently, so the news from China acted as a good excuse to lock in profit. Some traders are looking at the bigger picture too, as a slowdown in China could equate to lower economic growth for other countries.
China is one of the largest importers of commodities in the world, and in light of the underwhelming economic announcements, there has been a fall in copper, palladium and platinum. Metals are instrumental to the country’s industrial and manufacturing sectors, and some traders are taking the view that demand will taper off. WTI and Brent crude are suffering too for the same reason. It was also announced that China’s oil processing capacity dropped to its lowest mark since May 2020, underling the view the country is cooling.
The US dollar has recouped some of the ground that it lost on Friday – in the wake of the surprisingly low Michigan consumer sentiment survey. Later this week, the US retail sales report for July will be posted, and that should give us a better picture of consumer appetite. Surveys can tell us some of the story, while actual sales data is far more useful.
AUD/JPY is one of the biggest fallers on the currency markets today, the Australian dollar has been dented by the soft readings from China, while at the same time, the Japanese yen is in high demand due to the overall risk-off mood in the markets.
Overnight, gold hit a 10-day high as dealers dropped Asian stocks and ploughed their funds into the metal, but it is off the session highs on account of the firmer US dollar.