Just how severe was China’s second-quarter slowdown?

China will report its second-quarter gross domestic product level on Monday — and the economy’s year-on-year growth rate could easily slow to the weakest pace since Beijing began publishing quarterly readings in 1992. Analysts have pencilled in a drop to 6.2 per cent, on an annualised basis, for the three months to the end of June, down from 6.4 per cent in the first quarter.

Economists at Société Générale said China’s growth momentum had likely been dragged down by its tariff-battered manufacturing sector. “Housing construction and consumption probably remained largely resilient, but that is probably not enough to prevent the headline growth rate from dropping to a record low,” they said.

They added that liquidity tensions, triggered by the government takeover in May of commercial lender Baoshang Bank, probably also had the unintended effect of tightening credit conditions in the private sector. There is evidence Beijing may have overshot the mark in its push to support lending to other smaller-scale banks that had been struggling in the wake of the takeover, as short-term borrowing costs in China fell to their lowest level this month since the global financial crisis.

Although analysts have suggested weaker second-quarter growth would bolster the case for greater easing of monetary policy and infrastructure spending, the market impact will depend on what shape any stimulus from Beijing takes. Few are expecting a repeat of the 2009 equity boom, when a huge government spending package caused the Chinese stock market to leap 80 per cent. Hudson Lockett

Can inflation data pull UK attention away from Brexit?

UK inflation data on Wednesday will be a key data point for foreign exchange markets as investors attempt to get more clarity around what the Bank of England might do at its August meeting and beyond. In contrast with Europe, UK inflation had been nudging higher than the central bank’s 2 per cent target for over two years, before moderating since the start of the year.

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The consensus is that the rate will stick around that point for now.

Rising inflation was a key factor for the Bank of England when it raised rates in August last year, but since the start of 2019 price growth has moderated to near the central bank’s target, taking out some conviction that the BoE would raise interest rates this year.

Particularly in the context of political strains, sentiment is switching sharply; last week, RBC ripped up its forecast that the BoE will raise rates at the start of 2020. Instead it now predicts a cut in November. “With political rhetoric around a no-deal Brexit rising and with it the odds of the UK leaving the EU without a deal at the end of October, that outcome can no longer be assumed away,” the Canadian bank said.

Although GDP growth figures for May came as a positive surprise to markets, analysts still see a possibility that the economy could show a contraction in the second quarter.

Robert Wood, chief UK economist at Bank of America Merrill Lynch, expects two rate cuts from the central bank this year as recent data suggest that the economy could stagnate in the third quarter as well, with year-on-year GDP growth seen at 0.8 per cent.

“With inflation heading below target and large downside risks from Brexit and trade wars, this is a rate-cutting outlook,” said Mr Wood. Eva Szalay

Will iron ore continue its strong run?

Second-quarter results are due this week from the global mining sector, with production updates from BHP Group and Rio Tinto.

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Analysts and investors will be scouring the reports for any clues on the outlook for the iron ore market, which has been running red hot in 2019, outpacing other bulk commodities and base metals.

The price of the steelmaking commodity has surged almost 65 per cent so far this year, according to S&P Global Platts, aided by supply disruptions in Australia and Brazil and stronger-than-expected demand from China’s vast steel industry.

The big question now: whether prices can remain elevated or whether they will sink below $100 a tonne — from $118.55 now — as Chinese steel demand slows and supply starts to pick up.

Rio Tinto, the world’s second biggest iron ore producer, has lowered its production forecasts twice this year, most recently in June because of “operational challenges” at one of its main mining hubs in Western Australia.

The group now expects to export 320m to 330m tonnes of iron ore from its Australia mines this year, down from its original 2019 guidance of 338m-350m. (In 2018 it shipped 338m tonnes).

“Rio does not typically guide on next-year volumes until the end of the year or the start of the relevant year. However, given the spike in iron ore prices and operations challenges in the first half of 2019, any management commentary on volume ranges will be closely watched,” said analysts at Deutsche Bank. Rio reports on Tuesday.

BHP, which reports a day later, also lowered guidance in April after a tropical cyclone battered its operations in Western Australia. The miner has been straining to meet its revised guidance for 265m to 270m tonnes for the fiscal year to June, according to analysts, with production running at record annualised rates over the past month. Neil Hume



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