US equity futures were flat, erasing a modest earlier gain, while European stocks and oil retreated as bonds rallied after the latest Chinese data dump delivered more evidence of a slowdown in the world's second-largest economy, where Q2 GDP rose just 6.3%. below the 7.1% consensus forecast. At 7:30am, S&P futures were down 0.1% to 4,531 while Nasdaq 100 futures were fractionally in the green. Bond yields are 3-5bp lower, with the benchmark 10Y at 3.78%; the USD is weaker again; commodities are mixed with wheat pricing spiking after Russia terminated the Black Sea Grain deal; base metals are lower after the soften China GDP print. Yellen said US should further de-escalate US-China tension, but lifting tariffs may be premature. Fed entered its blackout period ahead of its July 26th FOMC. On the calendar today, we get the Empire Mfg. index data today at 8.30am ET (-3.5 survey vs. 6.6 prior).
In premarket trading, mega cap tech stocks are mostly higher, led by shares in Microsoft and Activision Blizzard which rose after a US appeals court denied the FTC's bid to pause the deal. Separately, Microsoft also says it has a binding agreement to keep the "Call of Duty" franchise on the Sony PlayStation platform. Activision Blizzard rose 4.2% in US premarket trading on Monday; Microsoft rose as much as 0.9%. Here are some other premarket movers:
The MSCI ACWI of stocks worldwide dipped 0.1% on Monday after surging 3% last week. Shares in mainland China were the worst performers in Asia. After a week of historic stock-market gains, investors started Monday on a downbeat note after data that showed China's growth for the second quarter missed estimates and its youth unemployment rose to a fresh, and dangerous, record high of 21.3%.
Indeed, the narrative that Chinese shoppers coming out of Covid lockdowns would be able to carry the global economy, despite rising US and European interest rates is dead and buried as economic reports continue to signal slowing momentum, sparking growing speculation that Beijing will have to put some action behind its endless words of "imminent" stimulus.
"China growth weakness has been brewing in the background for months," said Pooja Kumra, senior European rates strategist at Toronto Dominion Bank. "Clearly growth has not been able to keep pace with expectations."
While oil prices slumped as usual on the latest Chinese economic mess, wheat futures jumped after Russia terminated a grain-export deal, jeopardizing a key trade route from Ukraine, one of the world's top grain and vegetable oil shippers.
With its heavy dependence on the Chinese import market, European stocks are especially vulnerable. Companies tied to energy and raw materials together make up about 12% of the Stoxx Europe 600, and consumer discretionary industries account for 11%. Indeed, European stocks are on the back foot after disappointing economic data from China hit risk sentiment. The Stoxx 600 is down 0.4% and set for its largest drop in almost two weeks. Luxury goods stocks are leading declines after Richemont signaled slowing demand in its quarterly update. JPMorgan strategists expect further weakness in the region driven by lower bond yields as well as earnings disappointments. Here are some other notable premarket movers:
Earlier in the session, Asian stocks declined as a slower-than-expected growth in China's economy weighed on mainland equities. Trading in Hong Kong was delayed due to a typhoon. The MSCI Asia Pacific excluding Japan Index fell as much as 0.4%, on course to end the gauge's five-day winning streak. Shares in mainland China and Taiwan, such as TSMC, were the biggest drags on the index. Japan was closed for a holiday while Hong Kong canceled morning trading and will likely scrap the afternoon session as well because of typhoon Talim. The second-quarter GDP data showed that China's economy grew slower than expected with consumer spending easing notably in June. The disappointing growth data further dented sentiment after the central bank scaled back its injection of medium-term policy loans despite weak growth. The key stock benchmark in the mainland dropped as much as 1.1%, the most in three weeks.
Monday's weakness came after the MSCI Asia Pacific Index capped its best weekly rally since November last week, thanks to big gains in North Asia. Analysts said Asian stocks will likely resume gains after Monday's breather, driven by the recovery in tech cycle and China's stimulus hopes.
"We remain tactically positive on Asian stocks," Nomura analysts including Chetan Seth said, adding that "the positive momentum in stocks can continue at least in the very near term." They said that Korean markets will be the main beneficiary of a softer dollar and a resilient US economy due to their exposure to tech and artificial intelligence. South Korea's benchmark index fell Monday after its best weekly gain since mid-January. Investors are also monitoring a slew of corporate earnings this week as the quarterly reporting season begins.
The relentless bubble that is Indian stocks advanced for a consecutive third session as benchmark Sensex posted its biggest surge this month to extend its record run, supported by gains in banks and software firms. The S&P BSE Sensex rose 0.8% to 66,589.93 as of 03:45 p.m. in Mumbai, its biggest single-day gain since June 30, while the NSE Nifty 50 Index advanced 0.8% to 19,711.45. HDFC Bank contributed the most to the index gain, increasing 2.1%, as the lender said net income rose 30% to 119.5 billion rupees ($1.45 billion) for the three months ended June 30, compared with 92 billion rupees a year ago. That surpassed analyst expectations for 114 billion rupees in a Bloomberg survey. Out of 30 shares in the Sensex index, 18 rose, while 12 fell
In FX, the US Dollar was pressured against the yen and the euro, while the soft China data also impacted currency markets, where the Aussie and Kiwi are the worst performers among the G-10s; the yuan also declined. The yen and franc outperform on haven demand. "EUR/USD appears a bit overstretched in the short term and could face a correction this week," ING strategists wrote in a note. Traders are almost fully discounting a 25 bps hike by the Fed later this month, and price roughly a one-in-three chance of a final tightening in November.
"Commodity currencies are weighed by weaker-than-expected China activity data, while the precipitous USD decline last week has also given them scope to retrace lower," said Fiona Lim, senior currency analyst at Malayan Banking Berhad in Singapore. "However, there could still be some hopes for a more significant stimulus package to be announced for China that could keep" commodity-linked currencies such as AUD and NZD from declining too sharply, she said
In rates, treasuries advanced with 10-year note futures testing Friday session highs and yields richer by 5bp-6bp across belly of the curve into early US session. Stocks slip, supporting gains in Treasuries, which are outperforming core European rates. US 10-year yields around 3.79%, richer by 4bp vs Friday close; belly-led gains in Treasuries steepen 5s30s by 2bp on the day while 2s5s30s fly is richer by almost 3bp in early session. Bonds extended a rally as investors looked to hedge any downturn in stocks and the economy. The yield on the 10-year Treasury fell five basis points to 3.77%. A busy week of dollar issuance is expected -syndicate desks are forecasting between $25 billion and $30 billion in new bond sales this week with banks leading the way coming out of earnings reports - and the resulting rate locks set to push TSY yields higher.
In commodities, crude futures declined with WTI falling 0.5% to trade near $75 as traders weighed disappointing Chinese economic data and restarting Libyan supplies against signs of a tightening market. Wheat futures jumped after Russia said it will not be extending the Ukraine grain deal.
While earnings season resumes in earnings tomorrow, today's calendar only sees the Empire Manufacturing report for July (exp. -3.5%, last 6.6)
Market Snapshot
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Comments
How could China miss a claimed growth target of 7.3% in the second quarter of 2003 when both the World Bank and the IMF projected a growth rate of 5.2%-6.5% this year for it and China forecasted a growth rate for itself within this range and still grew by 6.3% in the second quarter of this year?
This is the highest growth rate among the major economies of the world and more than five and eight times bigger than the growth rate of the US economy and the EUs respectively. It is the envy of the world.
Moreover, how could such a claim be true when China’s crude oil imports broke its previous records and hit 12.15 million barrels a day (mbd) and its oil demand rose to the highest level in its history when it hit 17.37 mbd in May and accounted for 57% of the global demand growth of 3.0 mbd?
If there were any shivers through oil and equities markets, they were not down to China's economy but to fears about the US banking system 's difficulties and more collapses among US banks.
China’s economy is the world’s largest based on purchasing power parity (PPP). It is 25% bigger than the United States’ also based on PPP. It will continue to drive the global economy well into the future.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert