People attend a job fair at a shopping mall in Beijing, China, June 30, 2023. REUTERS/Thomas Peter/File Photo Acquire License Rights
Aug 16 (Reuters) – A look at the day ahead in Asian markets from financial markets columnist Jamie McGeever.
The word “crisis” should always be used responsibly and prudently when discussing financial markets, corporations and economies. But have we got to this point with China?
Developments in the world’s second-largest economy over the past 24 hours — another string of “failures” on key data, a shocking rate cut and the sudden announcement that it will no longer release (record-high) youth unemployment data — suggest that this could be the case.
Rising concerns about China’s economy, policy options and financial markets will weigh heavily on Asian investor sentiment on Wednesday, with a rate decision from New Zealand and the latest Tankan surveys on manufacturing and services from Japan also on the horizon.
Asia is not all doom and gloom – Japan’s economy grew twice as fast as economists expected in the second quarter – but China’s problems are at the forefront right now.
Perhaps even more worrying for investors than the shortfalls in investment, industrial production and retail sales, or the surprise rate cut was Beijing’s decision to indefinitely suspend the release of youth unemployment figures.
The official interest rate was a record 21.3% in June. That’s bad enough, but in an online post last month — now removed — Professor Zhang Dandan of Peking University estimated it could be closer to 50%.
The latest China house prices overview is due out on Wednesday and another weak report could be in the offing as the country’s real estate sector is in a real crisis.
JP Morgan said Tuesday that a full default by developer Country Garden would more than double China’s year-to-date property defaults to $17 billion, adding to the $100 billion accumulated over the past two and a half years .
The People’s Bank of China may have finally pulled interest rates, but it had the expected effect of a drastic exchange rate cut. The offshore yuan fell 7.30 per dollar to its weakest level this year and is now hovering around 7.35 per dollar from November’s historic low.
Compare and contrast China to Japan, according to Tuesday’s record second-quarter GDP data, and the US, where Tuesday’s figures showed a rise in retail sales. The Atlanta Fed’s GDPNow model forecasts annual growth of 5.0% for the third quarter.
Global equities, Wall Street and emerging markets all tumbled on Tuesday under the weight of rising bond yields, Fed interest rate expectations “higher for the longer term” and a buoyant dollar.
The MSCI Asia ex-Japan Index fell for a fourth day and has only risen twice in the past 11 sessions. Among the biggest losers in Asia on Tuesday was Hong Kong’s mainland housing index, which fell 1%, extending its year-to-date decline to 16%.
Here are key developments that could give markets more direction on Wednesday:
– Interest rate decision for New Zealand
– Real estate prices in China (July)
– Japan Tankan Surveys (August)
By Jamie McGeever; Edited by Josie Kao
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The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and impartiality under the Trust Principles.
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