15th Aug 2022 10:08
(Alliance News) - The market took the latest batch of Chinese data and a monetary policy easing with caution on Monday.
The world's second-largest economy is moving at a pace that is disappointing the market.
"A slew of Chinese data has been released showing the Asian giant's economy lagging behind forecasters' expectations. Industrial production, retail sales, fixed-asset investment all came in below estimates, whilst youth unemployment reached a record level of 20%," Hargreaves Lansdown analyst Steve Clayton commented.
"China's economy is suffering from ongoing Covid lockdowns and a fragile property market. Developers reported lower rates of investment into new building projects, whilst sales of new homes dived by 31% in the year to end-July."
Factory output and retail sales in China edged up in July but undershot expectations. Rises in Covid-19 cases over the past few months have cast a dark cloud over China's economy.
In July, China's industrial production rose 3.8% on-year, down from a 3.9% jump in June, the National Bureau of Statistics said Monday. Growth fell short of FXStreet cited consensus of 4.6%.
"The slowdown in Chinese industrial production supports the narrative that stronger performances in May and June were primarily the result of a reopening rebound, and that with order backlogs now cleared, China's factories will increasingly run idle once more," Pantheon Macroeconomics analyst Craig Botham commented.
Retail sales grew at a slower-than-expected 2.7% from a year ago, down from 3.1% in June, while the urban unemployment rate fell to 5.4%, the NBS said. Retail sales growth of 5% was expected, according to FXStreet.
Botham added: "We were taken particularly by surprise at the weakness of retail sales, where we had thought China should eke out one more month of modest monthly growth given the support for some big ticket purchases.
"A renewed surge of Covid cases and tightening of zero-Covid restrictions likely played a part, but we think weak underlying demand is the main problem."
The People's Bank of China cut a key interest rate on Monday, surprising market participants.
The Financial Times reported the PBoC cut the medium-term lending rate to 2.75%, a reduction of 10 basis points. The interest rate is used a benchmark for one-year loans provided to the banking system.
The market interpreted the rate as "bearish", analysts at Dutch bank ING opine.
"Rather than rallying on the prospect of stimulus, commodity currencies have softened on the view that China may not be the engine of world growth for some time," ING added.
"Occasionally, one might see the commodity currencies rally on news of fresh monetary stimulus. In this instance, however, the Australian dollar is off around 0.5%. This can be rationalised through the view that the Chinese economy is still struggling and looks unlikely to contribute to any upside surprises to global growth this year. At the same time, investors are wary of new Covid outbreaks amid China's zero-Covid strategy and the potential for the type of renewed lockdowns that triggered China's GDP contraction in 2Q22."
The US dollar fetched AUD1.4180 early Monday UK time, up sharpy from AUD1.4042 on Friday afternoon.
Also on the back foot were mining stocks. Their share price moves are often a barometer for investor response to developments in industiral heavyweight China.
Anglo American PLC shares were 1.3% lower in London, while Antofagasta PLC was down 0.7%.
By Eric Cunha; [email protected]
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