Marketmind: Will China GDP spoil the party?

By Jamie McGeever

(Reuters) – A look at the day ahead in Asian markets from Jamie McGeever, financial markets columnist.

The macro and market week in Asia starts with a bang on Monday, with a raft of top-tier economic indicators from China culminating in second-quarter GDP growth data.

Just how weak has the world’s second largest economy been recently, and will that be enough to dampen the growing optimism that the U.S. economy is heading for a ‘soft landing’?

A raft of Chinese economic indicators for June – investment, retail sales, industrial production and unemployment – will be released on Monday, as well as the second-quarter GDP report.

A Reuters poll of economists suggests growth slowed significantly. The consensus view of 0.5% expansion over the first quarter is much lower than the 2.2% quarter-on-quarter growth in the January-March period, which captured the initial bounce after lockdown restrictions were lifted.

Year-on-year growth is expected to come in at a more impressive 7.3%, but that is inflated by base effects from the low level of growth in the same period last year.

Any optimism there was early this year has evaporated. Activity has slowed, the economy is sliding towards deflation, and investors have shunned China’s stocks, bond and currency. China’s economic surprises index last week hit a one year-low.

Later in the week China’s central bank sets its key one- and five-year lending rates. A sub-consensus Q2 GDP print on Monday could tilt expectations toward further easing.

Looking beyond China, inflation data from Japan and New Zealand on Friday and Wednesday, respectively, and unemployment figures from Australia on Thursday will be the most important points on the regional calendar for investors this week.

These come amid a renewed wave of bullish sentiment across local and world markets, in large part stemming from surprisingly tame U.S. inflation data. The dollar and U.S. bond yields have slumped, stocks and risk appetite have taken off.

According to Goldman Sachs (NYSE:)’s financial conditions indexes, global financial conditions are the loosest since April last year, and emerging market financial conditions are now the loosest since February last year.

Little wonder the MSCI World stock index jumped 3.4% last week, its best week since March, and the MSCI Asia ex-Japan index rallied 5.6%, its best week since November and finally showing signs of catching up after underperforming all year.

The early stages of the second-quarter U.S. earnings season have also helped sustain the positive mood. Bank of America (NYSE:), Morgan Stanley (NYSE:), Goldman Sachs, Tesla (NASDAQ:) and Netflix (NASDAQ:) are among the big names reporting in a busier reporting schedule this week.

Here are key developments that could provide more direction to markets on Monday:

– China GDP (Q2)

– China investment, retail sales, industrial production, unemployment (June)

– Indonesia trade (June)

(By Jamie McGeever; Editing by)