It’s been an underwhelming start to the week in financial markets with the eternal optimism of investors clashing with the reality of Chinese economic data.
There’s a bizarre willingness to turn a blind eye to the economic reality at the moment as long as the Fed doesn’t raise rates too fast. That doesn’t feel particularly sustainable but as we’ve seen so often before, it can last much longer than you may expect.
Rate cut does little to ease Chinese fears
The economic data from China yesterday was very disappointing, to put it mildly. Combined with the lending figures on Friday, it does not paint a good picture of domestic demand or the growth outlook. Retail sales were particularly weak, while fixed asset investment and industrial production were also well below the consensus. It seems the reopening boost was both uninspiring and short-lived.
And yet the PBOCs decision to cut the MLF and 7-day reverse repo rates by 10 basis points overnight came as quite the surprise. It seems no one saw that coming and it’s understandable why. Loan demand isn’t struggling because of high rates, it’s Covid lockdowns, ongoing property market uncertainty and the global environment. This rate cut won’t change any of that. But it does mean a cut to the LPR is now almost certain.
Japan recovering as inventories hold back Q2 GDP
The reopening in Japan boosted spending in the second quarter, although the GDP reading slightly missed expectations thanks to a decline in inventories which lifted the reading in Q1. These fluctuations can largely be ignored and the underlying picture remains positive for the Japanese economy. Of course, the global picture is increasingly gloomy and uncertain which could weigh into next year.
Can Bitcoin break $25,000?
Bitcoin has tested the water above $25,000 and been pushed back on the first attempt. It seems the cryptocurrency, like many other instruments, is testing a potentially significant barrier following the recent recovery and we may be seeing some profit-taking. Whether that becomes a full rotation lower isn’t clear yet but it doesn’t appear to have the momentum for a breakout at this time.