Marketmind: Still reeling from China's data debacle

Reuters
·2 min read
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A man walks under an electronic screen showing Japan's Nikkei share price index inside a conference hall in Tokyo

(Reuters) - A look at the day ahead in Asian markets from Jamie McGeever

With no major regional economic reports on tap Tuesday, Asian markets will continue to digest the implications from China's dismal data deluge on Monday that instantly deepened the gloom surrounding the world's second largest economy.

The central bank's meagre 10 basis point reduction to some lending rates in response is unlikely to have any discernible impact. China's economy is in trouble, bond yields are tumbling, and the yuan is feeling the squeeze.

The dollar jumped 1% against China's currency on Monday, one of its biggest rises in years, to push the yuan to its lowest since May. China's 10-year bond yield is less than 20 basis points from a fresh 20-year trough.

The slowdown is alarming, and as Societe Generale economists note, Beijing seems less willing than before to halt the slide, never mind reverse it.

"Our GDP forecast of 2.7% is right now at the bottom of Street estimates, and yet may still prove too optimistic. The July trajectory points to a below-2% GDP growth rate for 2022, if policymakers remain slow to step up," they wrote.

For the global economy and markets, however, China's darkening economic cloud may have a silver lining: lower energy prices.

Brent crude oil fell around 4% on Monday and is down 23% over the last two months. Its year-over-year rise - crucial for annual inflation prints - is down to around 35% from 100% in March.

Asia will look to take heart from Wall Street's upswing on Monday, which showed investors shrugging off China's news and an equally surprising and dismal New York Fed manufacturing report. For now, lower oil prices are trumping weak economic data.

GRAPHIC: GRAPHIC-Oil prices - current & y/y change (https://fingfx.thomsonreuters.com/gfx/mkt/gdvzyobrkpw/BrentOIL.png)

Key developments that should provide more direction to markets on Tuesday:

RBA minutes from August policy meeting

India's wholesale price inflation (July)

(Reporting by Jamie McGeever in Orlando, Fla.; Editing by Lisa Shumaker)