A raft of Chinese data releases today offered little in the way of joy for those hoping for a swift Chinese recovery story.
Q2 GDP at 6.3% missed the mark (7.3% expected) which was a downer, although this quarterly rate of growth does suggest that the 5% annual GDP target remains well within reach. Retail Sales at 3.1% was again a slight miss (versus the 3.2% expected) which reflects the challenges China faces on the consumer side.
In terms of challenges, the one that again stands out like a sore thumb from today’s data set is the new record high in youth unemployment (21.3%).
This number is unlikely to get any prettier in the coming month or two due to seasonal factors and given the potential structural impact of soaring youth unemployment investors will be closely monitoring to see what if any measures the PBOC introduces to address this area of concern.
Industrial output numbers were one of the few bright spots in today’s Chinese data (4.4% versus 2.7% expected).
But overall, today’s data release was the latest underwhelming chapter in a long line of disappointing macro indicators this year. In reaction, the Aussie Dollar understandably dipped given the trade ties with China. T
he AUDUSD rate eased back in the direction of the US$0.68 level and was last seen trading at US$0.6814.
The RBA Monetary Policy Meeting Minutes are due for release on Tuesday this week. Traders will be eager to look through the Minutes to see if there is any change of tone with regards to the interest rate path of the central bank, as such these Minutes could be key in deciding whether the AUDUD rate is closer to the 0.68 or 0.68 handle by this time tomorrow.
Elsewhere, the US dollar has so far managed only a mild bounce in response to the heavy sell-off suffered by the greenback last week. The DXY is still finding the going tough below the 100 level and now that we have entered the blackout period ahead of the July FOMC meeting, the USD can’t rely on any hawkish Fed comments to propel any sort of recovery.
But if we see any upside surprises in economic indicators this week, such as retail sales numbers, this could give the US a leg-up. In the meantime, the US dollar weakness is allowing the gold price to consolidate recent gains as treasury yields remain subdued.
Meanwhile, there has been a mild pull-back in oil prices which is not surprising given the gains witnessed last week.
Oil softened a little in response to the Chinese data today which was uninspiring to say the least. However, the oil price is being supported still by production cuts and the prospect of lower peak interest rates. The WTI contract was last seen trading at US$74.66.
Market attention is now transitioning from interest rates to earnings season, with the bottom-line results of the big corporate names set to be the prime driver of market direction in the coming weeks.
Q1 earnings season provided plenty of hype and it will be a big ask for the Q2 season to try and match it. Particularly as we have seen monetary policy conditions tighten further in Q2. And company valuations will be under very close scrutiny especially in the tech space given the run higher in stock prices this year.
So, there is scope for Q2 earnings season to underdeliver compared to Q1. But with inflation turning lower and the Fed seemingly near the rate peak, provided we don’t see any flashing warning signals this earnings season pointing towards a hard landing scenario, then the constructive equities outlook appears poised to remain intact.
Market commentary and analysis from Tim Waterer, chief market analyst at KCM Trade
