Equities and Commodities Decline as China’s Economic Growth Slows

Global Shares Decline Monday

Global shares and commodities experienced a decline on Monday in response to data revealing slower-than-expected economic growth in China. The Chinese economy expanded by 0.8% in the second quarter, surpassing the forecasted 0.5%, but the annual growth rate fell below expectations at 6.3%, significantly lower than the projected 7.3%. The news prompted a decrease in equities and emerging market currencies, while the dollar weakened as traders increased their bets on an upcoming end to U.S. rate hikes.

U.S Dollar Declines

Last week, the U.S. dollar experienced a significant decline as investors shifted towards riskier assets like equities and emerging market currencies. This followed a cooler reading of U.S. consumer inflation, which led investors to believe that the Federal Reserve might execute the final rate hike of its monetary policy cycle this month. The dollar’s decline continued on Monday, falling 0.1% against major currencies, indicating traders’ reduced expectations of a rate hike in September.

With a light macro calendar this week and Fed officials entering their “blackout period” ahead of the July policy meeting, investors are left wondering if last week’s market movements will continue or reverse. Some market participants believe that the current market sentiment might be overly optimistic, assuming that the Federal Reserve will halt future rate hikes after the upcoming one. However, others caution against this view, stating that one cooler inflation reading does not guarantee the end of rate hikes.

U.S and European Markets React

In response to the Chinese data, global equities declined by 0.1% on Monday, with European shares, particularly China-sensitive shares like miners, experiencing a 0.3% drop. U.S. stock index futures remained mostly steady, with a packed week of corporate earnings ahead. Notable companies such as Tesla, Bank of America, Morgan Stanley, Goldman Sachs, and Netflix are scheduled to release their earnings reports this week. Additionally, U.S. retail sales data is expected to show a rise of 0.3% excluding automobiles, aligning with the market’s favored soft-landing narrative.

The decline in the dollar, coupled with concerns about China’s economic growth, impacted other markets as well. Crude oil prices experienced a sharp drop due to doubts surrounding demand from China, the world’s largest energy importer, while production in Libya increased after a temporary outage. Brent crude futures fell by 1.6% to $78.60 per barrel, and copper, which is highly sensitive to Chinese data, dropped 2.1% to $8,490 per tonne.

Overall, the market reacted negatively to the slower-than-expected economic growth in China, causing equities and commodities to decline. Meanwhile, the dollar weakened as traders adjusted their expectations for future rate hikes by the Federal Reserve. The upcoming week will be marked by corporate earnings reports and data releases, providing further insights into the global economic landscape.

SUMMARY

• Global shares and commodities decline after slower-than-expected Chinese economic growth
• China reports 0.8% GDP growth in Q2, below expectations, while the annual pace slows to 6.3%
• Dollar weakens as traders anticipate the end of U.S. rate rises
• Last week, the dollar saw its biggest weekly fall in 2023, as investors priced out the chance of a September rate hike
• This week’s data calendar is light, and Fed officials are in a “blackout period” before the July policy meeting
• Market uncertainty on whether recent market moves will continue or reverse
• Global equities edge down, pressured by Europe’s decline, especially China-sensitive shares like miners
• Packed week of corporate earnings including Tesla, Bank of America, Morgan Stanley, Goldman Sachs, and Netflix
• U.S. retail sales expected to show a rise of 0.3% ex-autos, fitting the market’s favored soft-landing theme
• Markets imply a high chance of Fed hiking this month but lower probability of a further rise by November
• Two-year U.S. Treasury yields down, dollar weakens against the yen and euro
• Sterling rises ahead of UK inflation figures, potential for further rate hikes
• Crude oil drops after China GDP data, uncertainty in energy demand, and increased production in Libya