China first-quarter GDP growth seen easing only slightly as trade tensions mount

Asian Stock Markets

China likely carried most of its strong economic momentum from last year into the first quarter of 2018, with government crackdowns on financial risks and industrial pollution dragging less on activity than earlier expected, a Reuters poll showed. 

Beijing is looking to keep the economic balancing act intact even as it faces rising trade tensions with its largest trading partner, the United States, that could impact billions of dollars in cross-border trade.

A poll of 60 economists showed growth in gross domestic product likely eased marginally to 6.7 percent in the first quarter from a year earlier, compared with the 6.8 percent clip in the previous two quarters.

At the start of the year, analysts were pencilling in a first-quarter slowdown to 6.6 percent.

The consensus forecast indicates growth remained comfortably above the government’s target of around 6.5 percent for the full year, which could give policymakers more confidence to step up efforts to reduce risks in the financial system and clean up the environment.

China’s economic data so far this year has pointed to steady if slightly slower growth from 2017, with factory output holding up despite smog controls and consumer spending still relatively resilient.

Central bank governor Yi Gang said on Thursday that first quarter economic data has so far been slightly better than expected.

China will release first quarter GDP on Tuesday, along with March industrial output, retail sales, property sales and investment, and fixed asset investment data.

Economists in the poll estimated GDP grew 1.5 percent quarter-on-quarter, easing from 1.6 percent in the fourth quarter, though only 15 analysts gave sequential forecasts.

Data on Friday showed export growth slowed in the first quarter in yuan terms, indicating overseas demand may not provide the same boost to overall GDP as it did last year, when the economy posted its first pick-up in growth since 2010.

Analysts say the main risk to China’s economy is now centred on the escalating trade dispute with the United States.

Washington and Beijing have threatened tit-for-tat tariffs in recent weeks, stemming from U.S. accusations of unfair Chinese trade practices.

But no hard timeline has been set by either side for implementation, offering hope of a compromise that would reduce the fallout for both sides and collateral damage for other trade-reliant Asian economies plugged into China’s supply chains.

“Both the choice of Section 301 and the number of products included in the list under investigation point to the U.S. protectionist wind against China being very different, and frankly much more worrisome, than past ones,” Alicia Garcia Herrero, chief economist for Asia Pacific at Natixis, said in a note on Monday.

A researcher with China’s state planning agency said last week that China’s economy will see little impact from the trade dispute, as the country’s vast domestic market can compensate for any external impact.

Separate data on Friday showed China is making solid progress in reining in off-balance sheet lending that largely prompted the sweeping crackdown by regulators.

Total credit in the economy in the first quarter fell nearly 20 percent on-year, though some economists think Beijing will not tap the brakes too hard and risk a sharper economic slowdown.

While economic growth could bounce back in spring due to seasonal factors such as a pick-up in construction, analysts still maintain that activity in China will start to cool eventually, weighed down by a cooling property market and rising borrowing costs.

Asian stocks try a tentative bounce

Asian Stock Markets

Asian share markets found a semblance of calm on Monday as S&P futures extended their bounce, though global investors were still fretting about the risks from looming U.S. inflation data after last week’s sharp sell-off. 

MSCI’s broadest index of Asia-Pacific shares outside Japan crept up 1 percent, having suffered a 7.3 percent drubbing last week.

Both South Korea and China gained 1.2 percent, while Japan’s Nikkei was closed for a holiday.

E-Mini futures for the S&P 500 rose 0.6 percent, adding to a late bounce on Friday.

European bourses were expected to open with solid gains, with futures for the London FTSE already up 1.4 percent.

Yet a relatively sharp 14-tick drop in Treasury bond futures suggested it was too early to sound an all-clear on volatility.

Particularly challenging will be U.S. consumer price data on Wednesday given that it was fears of faster inflation, and thus more aggressive rate rises, that triggered the global rout in the first place.

Median forecasts are for consumer price inflation to slow a little to 1.9 percent in January from a year earlier, mainly due to the base effect of a high reading in January 2017, while the core measure is seen ticking down to 1.7 percent.

A result in line with or below expectations would likely be a big relief, while anything higher could well spook investors, lift bond yields and batter stocks.

Aziz Sunderji, an economist at Barclays, suspects the inflation scare will prove to be transitory.

THE RETURN OF VOLATILITY:

But what a bump it was.

The benchmark S&P 500 fell 5.2 percent last week, its biggest decline since January 2016.

Ninety-six S&P 500 stocks were down 20 percent or more from their one-year highs, according to Thomson Reuters data.

In Asia, Hong Kong’s high-flying shares shed almost 10 percent for the week, while Japan lost 8.1 percent and South Korea 6.4 percent.

The pivotal gauge of S&P 500 volatility, the VIX, remained relatively elevated at 29 percent.

Yields on U.S. 10-year Treasury paper touched a four-year top of 2.885 percent, moving ever further above the S&P 500’s dividend yield of 2.34 percent.

The ascent of yields had offered some support to the U.S. dollar last week, but was proving of limited help on Monday as speculators returned to short the currency.

The euro clawed back 0.5 percent to $1.2288, after losing 1.8 percent last week, while the dollar eased 0.4 percent on a basket of currencies to stand at 90.118.

The dollar was steady on the yen at 108.71, aided in part by reports that Haruhiko Kuroda would be re-appointed as head of the Bank of Japan and likely continue the country’s ultra-loose monetary policy.

Commodities pared recent losses, with gold 0.6 percent firmer at $1,323.88 an ounce and off a five-week low of $1,306.81.

Brent crude futures rallied 59 cents to $63.38 a barrel, while U.S. crude for April added 68 cents to $59.88.

Brent lost nearly 9 percent last week and U.S. crude dropped 10 percent, the steepest falls since January 2016.

Asian Stocks Rise Modestly, Bitcoin Price Clobbered Once Again

Asian stocks broadly tracked the US up on Friday. 

The Euro was pressured by separatist victory in Catalonia’s elections. Bitcoin took yet another major hit
 
Asian markets had to endure a complete lack of local economic news Friday which left them little to do but track Wall Street’s moderate Thursday gains.
 
The Nikkei 225 added 0.16%, with the ASX 200 0.15% higher. Most major bourses were in the green with the exception of the Shanghai Composite which bobbed around its opening levels as the closing bell loomed.

The US Dollar edged upward with the Euro slightly beleaguered by news of a win for separatist parties in Catalonia’s regional elections.

The Japanese Yen was steady on news of its home country’s latest budget in which defence spending was a notable riser.

The Australian and New Zealand Dollars were higher too, reportedly thanks to higher commodity prices.

 Bitcoin volatility continued with the cryptocurrency leader losing over $2000 at once point to trade under $14,000. 

Oil prices were weighed down by reports of rising US supply while gold prices remained on course for a second week of gains.

Still to come Friday are Gross Domestic Product data from France, the UK and Canada but the day’s economic highlight will probably be US durable goods order numbers.

The University of Michigan’s consumer confidence snapshot is also coming up.

Asia stocks stay near highs, though Tokyo slides; dollar slips

Asia stocks stayed closed to a decade-long peak on Thursday following another record-breaking day on Wall Street, though Japan’s Nikkei slid back from a 26-year high in volatile trading, hit by profit-taking.

The dollar slipped amid uncertainty over the fate of the U.S. tax reform plans, while the New Zealand dollar rallied as hawkish-sounding statements by the country’s central bank boosted the recently-battered currency. 

Spreadbetters expected Britain's FTSE .FTSE to open 0.2 percent lower, Germany's DAX .GDAXI to open down 0.03 percent and a flat start for France's CAC .FCHI. 

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was up 0.2 percent and in close reach of a 10-year high set the previous day, taking cues from overnight Wall Street gains. 

Australian shares rose 0.55 percent and to their highest level since January 2008. South Korea's KOSPI .KS11, which had a succession of record highs in past weeks, handed back earlier gains and was flat. 

Shanghai .SSEC dipped 0.1 percent and Hong Kong's Hang Seng .HSI climbed 0.6 percent.

Japan's Nikkei .N225 initially surged 2 percent to reach a high not seen since January 1992 but reversed course and ended the day down 0.2 percent.

Among currencies, the New Zealand dollar was a big mover, surging about 1 percent to a two-week high of $0.6974 NZD=D4 before last trading at $0.6956. 

The kiwi flew after the Reserve Bank of New Zealand (RBNZ) said early on Thursday that added fiscal stimulus and a lower local dollar would lead to faster inflation and likely an earlier rise in interest rates. 

On Thursday, the central bank held rates steady at 1.75 percent, as widely expected. In late October, the New Zealand dollar sunk to a five-month low of $0.6818 as a change in government unsettled investors.

Oil prices fall ahead of U.S. holiday after eight days of gains

Oil prices retreated in Asian trade on Tuesday, halting a run of eight straight days of gains on signs that a persistent rise in U.S. crude production is running out of steam.

Brent crude futures LCOc1 had fallen 13 cents, or 0.3 percent, to $49.55 per barrel by 0705 GMT.
U.S. West Texas Intermediate (WTI) crude futures CLc1 were trading down 9 cents, or 0.2 percent, at $46.98 a barrel.

The falls came after both benchmarks recovered around 12 percent from their recent lows on June 21.
Many traders closed positions ahead of the U.S. Independence Day holiday on July 4, while Brent also faced technical resistance as it approached $50 per barrel, traders said.

Late May and most of June were overwhelmingly bearish as U.S. output rose and doubts grew over the ability of the Organization of the Petroleum Exporting Countries (OPEC) to hold back enough production to tighten the market.

But sentiment began to shift towards the end of June, when U.S. data showed a dip in American oil output and a slight fall in drilling for new production. RIG-OL-USA-BHI C-OUT-T-EIA

BMI said it expected Brent to average $54 per barrel in the second half of this year, and to average $55 a barrel in 2018.

ANZ bank said on Tuesday that the dips in U.S. production and drilling were "a small but significant shift in the dynamics in the oil market" and that this would take some pressure off OPEC's struggling efforts to rein in oversupply.

OPEC is leading a bid to tighten oil markets by pledging to hold back around 1.2 million barrels per day (bpd) in output between January this year and March 2018.

Its efforts have been undermined by rising production from Libya and Nigeria, who are exempt from the cuts, which helped push the group's June output to a 2017-high of 32.57 million bpd, about 820,000 bpd above its supply target.

Dollar steadies, sterling hit briefly post London attack

The dollar recovered from last week's seven-month lows on Monday, edging up against the euro and yen, but still looking exposed to any renewed optimism from a European Central Bank policy meeting this week.

Sterling, on a rollercoaster ride driven by diverging opinion polls ahead of Thursday's national election, also recovered after a van and knife attack on pedestrians in central London on Saturday drove a brief drop in early Asian trade.

Services data from the data are the main set-piece of the European morning on Monday, but dealers say the week should be dominated by the UK election and the ECB meeting, eyed for signs of the bank turning toward tighter policy later this year.

Coming at a time when political risk in Europe has eased, U.S. economic data has worsened and expectations for more rises in Federal Reserve rates have fallen, that prospect pushed the euro to a seven-month high on Friday.

"Overall we think the risks are skewed toward a more cautious stance (from the ECB) than the market is expecting," said Barclays strategist Nick Sgouropoulos, pointing to more downbeat messages sent by other major central banks in recent weeks.

The euro fell just over 0.1 percent to $1.1270, still very close to Friday's high of $1.1285. EUR= The dollar was also 0.1 percent stronger at 110.48 yen. JPY=
 
Other moves among the G10 group of major developed world currencies, however, kept the dollar index almost flat compared to Friday's close at 96.756 .DXY.

The pound's trade-weighted value has fallen by 3 percent in just under 4 weeks as Prime Minister Theresa May's bid for a landslide electoral victory that would strengthen her hand in talks on leaving the European Union ran into trouble.

It was not immediately clear how the events on Saturday would impact the election, though the issue of security has been thrust to the forefront of the campaign after the London Bridge and Manchester attacks.