HomeBusinessChinese clouds darken the mood on the market

Chinese clouds darken the mood on the market

By Jamie McGeever

(Reuters) – A look at the day ahead in Asian markets.

Overall, the global environment for Asian markets is still bright, with investors confident that the Fed will cut US rates soon, keeping the dollar, bond yields and volatility in check and becoming risky assets stimulated.

But there is one cloud that shows no signs of lifting: China. If anything, it’s getting darker.

The economic ‘data dump’ from Beijing on Friday showed China’s recovery is sputtering, with investment growth slowing, retail sales growing at the slowest pace since late 2022 and new home prices falling at the fastest pace in nine years.

The most worrying thing is that the crisis in the real estate sector is deepening. Granted, Chinese and Hong Kong stocks rose on Friday after Beijing unveiled a series of historic steps to stabilize the sector, but will the rebound last?

Although the central bank says it will provide 1 trillion yuan in additional financing and relax mortgage rules, and local governments will buy some apartments, the deep-rooted foundations of massive oversupply and weak demand remain.

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The renewed concerns about Chinese growth raise the question of how Beijing will finance its budget support measures in the long term. China has more than $3 trillion in foreign exchange reserves. Is now the time for China to dip into that rainy day fund to prevent the real estate crisis from bringing down the broader economy?

That’s unlikely, and Beijing may well default on boosting exports as the best path to recovery. But that would not be welcome by the United States, which last week imposed additional tariffs on $18 billion of imports from China.

These tariffs and the hardening battle lines between the West and China on trade will undoubtedly figure prominently at the G7 finance officials meeting in Italy next week. US Treasury Secretary Janet Yellen will attend, but it is unclear whether Fed Chairman Jerome Powell will travel after he tested positive for COVID-19.

That said, financial markets are currently experiencing a period of remarkable calm. Global currency volatility is the lowest in five weeks, US Treasury market volatility is at its lowest level in six weeks and the VIX index fell below 12 for the first time this year on Friday.

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This low volatility helps lift the US, European and other stock markets to record highs.

The Asian economic calendar on Monday offers quite a few indicators for investors to sink their teeth into, including: GDP from Thailand, current account and trade data from Indonesia, Malaysia and Taiwan, and unemployment from Hong Kong.

China’s central bank is widely expected to leave interest rates on one- and five-year loans unchanged again at 3.45% and 3.95% respectively, after leaving its medium-term lending unchanged on Wednesday.

However, the pressure to make cuts soon is increasing.

Here are the key developments that could give markets more direction on Monday:

– Thailand GDP (Q1)

– Taiwanese exports (April)

– Japanese Tertiary Index (March)

(Reporting by Jamie McGeever; Editing by Lisa Shumaker)

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