Shares sapped by poor China growth, dollar gets weekly mauling
World stocks flatlined after China posted its weakest growth in nearly three decades on Friday, while the dollar headed for its worst week in almost four months having been pummeled by pound and euro Brexit rallies.
China’s economy grew a slightly less-than-expected 6% in the third quarter, but traders seemed to be taking comfort that swift stimulus from Beijing and major central banks in recent weeks could avert a more serious downturn.
Asia did see a 1.2% slump in Chinese shares <.CSI300> but Wall Street futures were steady and European bourses had mostly recovered from their early wobbles <.SXAP> after carmarker Renault issued a screeching profit warning. [.EU]
China’s news didn’t come as too much of a surprise either amid the country’s trade war with the United States and after the International Monetary Fund had cut its global forecasts again this week.
“You can’t get away from the fact that China is slowing, but it’s not slowing more than we thought,” said head of global macro strategy at State Street Global Markets Michael Metcalfe.
“We know that Q4 is going to be a soft patch, but to a degree policymakers are ahead of this, so as long as we don’t have an escalation of the trade war now, I think markets can handle it.”
In currencies, sterling was taking a breather at $1.2886, having scored its best six-day streak in nearly 30 years on Thursday after Britain and the EU sealed a new Brexit deal.
Doubts about whether that deal will be approved in the British parliament were still sky high, though.
Swathes of lawmakers, who are either reluctant about Brexit or worried the deal is not a clean enough break, will debate the deal in a rare Saturday sitting, meaning Monday trading will certainly be lively.
“Whatever was agreed last night with the EU still has to go through the British parliament… the uncertainty surrounding that still hasn’t changed one iota,” said James McGlew, executive director of corporate stockbroking at Argonaut.
The euro meanwhile continued to creep upwards, making a 7-week high of $1.1145
Money markets are pricing in an 82% chance of a U.S. interest rate cut at the Oct. 30 meeting, Refinitiv data shows.
“We are lowering the policy rate today, we are taking on board downside risk, but we can take back that insurance in 2020 or 2021 if it turns out we were overly worried about the downside risks,” Federal Reserve policymaker James Bullard said this week.
Helping to alleviate immediate trade war worries, China had said on Thursday that it hoped to reach a phased agreement in its trade dispute with the United States as soon as possible.
Investors were also encouraged by upbeat premarket earnings from Coca-Cola and Oilfield services provider Schlumberger, but poor results from International Business Machines Corp and weak U.S. economic data weighed.
Housing starts, industrial production and mid-Atlantic factory output all fell short of economists’ expectations.
Reflecting the cautious mood, the safe-haven yen strengthened, with the dollar falling 0.13% to 108.51. The yield on benchmark 10-year Treasury notes
Brexit progress meant European yields were also nudging up with German Bund yields holding at -0.40%, the highest since early August.
The Bund yield is now up 16 bps since Irish and British leaders said on Oct. 10 they saw a path to a Brexit deal, which boosted risk appetite and weakened demand for safe-haven assets like bonds.
In commodities, oil fell on the China data, with Brent crude easing 0.52% to $59.60 and U.S. crude dropping 0.19% to $53.83.
“The (China) GDP print has weighed on short-term sentiment and we have seen regional stock markets and oil contracts edge lower because of that,” said Jeffrey Halley, senior market analyst for Asia Pacific at brokerage OANDA.
Crude demand growth tends to track economic growth trends, but Halley said China’s need for oil would not recede any time soon.
Underlining that view, Chinese official data released on Friday showed robust refinery throughput in September, rising 9.4% from a year earlier to 56.49 million tonnes, on increases from new refineries and some independent refiners resuming operations after maintenance.
Gold dipped to $1,488 per ounce.
Source: Reuters (Additional Reporting by Shadia Nasralla in London and Andrew Galbraith in Shanghai; Editing by Nick Macfie)