This post was originally published on this site
Back with the Chinese growth figures and the financial oversight news. Sean Yokota, head of Asia strategy at Nordic bank SEB, said:
China’s second quarter 2017 GDP remained elevated at 6.9% year-on-year and beat the market’s expectations of 6.8%. June monthly indicators, such as industrial production and retails sales, are also showing strength. Monetary tightening has helped slow the domestic economy but the upside in Q2 2017 GDP came from stronger external demand. Due to stronger than expected growth in the first half of this year, we have revised up our 2017 GDP forecast to 6.8% from 6.7%. We still expect a mild slowdown in H2 2017.
Over the weekend President Xi of China announced the creation of a super regulator called the Financial Stability and Development Committee (FSDC). This move clearly shows that the government and President Xi see the increasing risk from financial market instability as a priority. The contagion risk bleeding from financial market risk to political risk has grown to a point where President Xi needs to monitor this at the State Council level. Another implication is that financial market development will slow as when authorities are focused on risk, the market becomes more conservative and liberalisation slows.
The other news out of China today is that Winnie the Pooh has seemingly fallen foul of the country’s internet censors.
The much-loved, tubby bear can no longer be discussed on Chinese social media sites, apparently as part of a new crackdown by Beijing.
But it’s not all bad for Pooh; he has been given a prime position on the front page of the Financial Times, which says:
Posts including the Chinese name of the fictional bear were censored on Sina Weibo, ChinaTwitter-like platform, over the weekend, while a collection of animated gifs featuring the bear were removed from social messaging app WeChat.
While no official explanation was given, observers suggested the crackdown was related to previous comparisons of President Xi Jinping with the portly bear created by the English author AA Milne that went viral.
Apart from China’s growth figures, economists are also digesting the conclusions of a conference on regulation held by Chinese officials last weekend.
There’s much interest in president Xi’s decision to create a cabinet-level committee to coordinate financial oversight. That could be a sign that Beijing is more concerned about problems brewing in the country’s financial system.
The official statement issued after the conference said that the “eternal theme” was to prevent systemic risk building up in the Chinese economy.
Premier Li Keqiang called for financial oversight to be “professional, consolidated and penetrating”, and there was also a warning that failing to spot problems
Strong words were also heard on greater accountability for regulators, with the statement saying it would be a “dereliction of duty” if regulators fail to spot risks and tackle them in time…
Capital Economics says these pledges are more important than the actual growth figures…..
This also explains why the Chinese stock market fell today, while other market rallied. A clampdown on risky lending, or financial bubbles, would surely feed through to asset prices…
Several economists are predicting that China’s growth rate will ease, sooner or later.
Zhou Hao, an economist with Commerzbank, says (via the WSJ):
“Though the Chinese economy was holding up better than expected in the first half of the year, a slowdown is kind of inevitable.”
And Robin Bew of the Economist Intelligence Unit reckons Chinese growth will hold up for a few months more.
Sign up to our email
Guardian Business has launched a daily email.
Besides the key news headlines that you’d expect, there’s an at-a-glance agenda of the day’s main events, insightful opinion pieces and a quality feature to sink your teeth into each day.
For your morning shot of financial news, sign up here:
If China’s GDP does hold up, then it could post its first year of faster growth since 2010.
Dan Wang, China analyst at the Economist Intelligence Unit, believes today’s growth figures bode well for the next six months….
China’s economy will hold up for the second half of the year, given sustained state-led investment and robust household spending. The monetary policy will remain neutral–cracking down shadow banking while increasing lending through formal banking channel.
Given the high base in 2017, however, to sustain high growth for 2018 will be tough.
at 6.49am EDT
Sterling dips as Brexit talks begin
The pound has fallen back from last week’s 10-month high this morning, as City traders fret about Brexit.
David Davis, Britain’s secretary of state for exiting the European Union, is back in Brussels for fresh talks with EU officials (although only one side had their paperwork on display…..)
The weekend’s newspapers brought a blizzard of negative stories about cabinet members, particularly Philip Hammond. The chancellor was roasted for telling colleagues that public sector workers were overpaid, and ‘joking’ that even a woman could drive a train (unless she was too busy starring in Dr Who or running the country, I guess).
Transport secretary Chris Grayling has now denied that the cabinet is riven with infighting, but this didn’t stop the pound losing 0.2% to $1.307.
Foreign secretary Boris Johnson’s claim last week that the EU could ‘whistle’ for an exit payment from Britain has also worried the City.
Joshua Mahony of IG says:
UK-EU Brexit discussions continue apace today, with the relationship seemingly souring amid critical comments from Boris Johnson and a drive from France towards a hard Brexit.
There is now a clear need to get a transitional deal into place, with the negotiations looking ever more unlikely to conclude satisfactorily within the two-year deadline.
It’s official! Inflation across the eurozone eased a little last month.
The eurozone’s consumer prices index rose by 1.3% in June, says Eurostat, matching last month’s ‘flash’ estimate.
That’s down on 1.4% in May, and further away from the European Central Bank’s target of just below 2%.
As this tweet shows, prices are rising rather faster in the UK, where CPI hit 2.9% in May. June’s UK inflation data is out tomorrow, and will probably show that the cost of living squeeze continues….
China’s growth figures are often treated with some scepticism.
Analysts often question whether the data can really be trusted, given the temptation to massage bad date and the sheer challenge of measuring economic output over such a huge economy.
And China certainly has an impressive track record of hitting Beijing’s official growth targets…..
But having said that, today’s GDP report is being taken quite seriously, thanks to the flurry of decent retail sales, investment and factory production data.
Marc Ostwald of ADM Investor Services has all the details:
It was the monthly data which impressed, with Retail Sales at 11.0% y/y posting its strongest growth since December 2015, and all the more robust given that this is a value not a volume measure, and CPI inflation has been very subdued in recent months.
Industrial Production ‘smashed’ forecasts at 7.6% vs. expectations of an unchanged 6.5% y/y, with the breakdown highlighting strength in ‘new economy’ (Telecoms/Computing 13.1% y/y vs prior 10.3%), Pharmaceuticals (13.6% vs./ 10.75) and the volatile / seasonal Food sector 11.0% vs. 7.6%), while resource processing sectors’ output remains subdued, which can only be considered to be healthy.
Taking all of this in conjunction with the solid 7.2% y/y in the Private sector investment component of Fixed Asset Investment (8.6% vs. expected 8.5%), there is goodly volume of evidence that China’s economy is indeed rebalancing away from being investment led to consumption led, paced both by domestic and external demand, given the 3.6% contribution from Net Exports to 2017 H1 GDP.
UK construction companies are rubbing their hands with glee this morning after winning contracts for Britain’s new HS2 high-speed rail line.
The government has awarded £6.6bn of work to construct the section between London and Birmingham.
Successful bidders include Carillion’s joint venture with French construction company Eiffage and UK firm Kier. Carillion desperately needs some good news, after shocking the City a week ago with a whopping profits warning and huge writedowns on certain contracts.
Shares in ITV have jumped to the top of the FTSE 100 leaderboard, after the broadcaster snaffled Carolyn McCall from easyJet to be its next CEO.
ITV announced McCall’s appointment this morning, two days after we reported she was the ‘preferred candidate’ for the role.
My colleague Mark Sweney has the details:
McCall, a former chief executive of the Guardian Media Group, will join ITV on 8 January, replacing Adam Crozier, who left the company at the end of June.
ITV chairman Sir Peter Bazalgette, the former chairman and creative chief of Big Brother maker Endemol, had been keen to replace him with a successor with serious experience at a publicly-listed company.
McCall has been appointed from a final shortlist of three which included Paul Geddes, the Direct Line chief and Channel 4 board member, and the Dixons Carphone boss, Sebastian James.
“In a very impressive field of high-calibre candidates, Carolyn stood out for her track record in media, experience of an international operation, clear strategic acumen and strong record of delivering value to shareholders.
I’m delighted we’ll be working together at ITV.”
European stock markets have opened higher, thanks to China’s growth figures.
Mining shares are rallying in London, on the prospect of greater demand for copper, nickel, iron ore and coal.
And that has pushed the FTSE 100 up by 28 points, or 0.4%, to 7407.
The French, German and Spanish markets are also rising, helping to keep global share prices at today’s all-time peak.
Connor Campbell of City firm SpreadEX says Europe’s traders have begun the week in a good mood, boosted by the wave of data from China.
Overnight there was a quartet of important Chinese figures, led by a better than expected 6.9% GDP reading.
That was joined by a far stronger than forecast industrial production number, an 11% increase in retail sales year-on-year and solid fixed asset investment figure.
China takes in a lot of raw materials, to drive its factories and underpin its infrastructure spending.
So it’s not surprising to see commodity prices on the rise, following the Chinese GDP report.
In London, Copper has hit its highest level since March, gaining 0.8% to $5,970.5 per tonne. Meanwhile in China, the cosy of steel in China has risen to a new three and a half-year high.
at 3.29am EDT
Chinese GDP: What the experts say
Craig James, chief economist at Commonwealth Securities in Sydney, says China’s latest growth figures may indicate that the world economy is holding up.
He says (via Reuters):
“(The new data) is encouraging for global growth as well because China is the second largest economy on the planet.”
“Based on this data, there is no need for easing and no need really for tightening either because inflationary pressures are very much contained. So I think the People’s Bank of China just continues to be watchful.”
Bill Adams, senior international economist at PNC Bank, believes the figures bode well for growth across developing economies.
As China goes, so go emerging markets. Its solid growth reinforces recoveries for commodity exporters and keeps 2017’s pick-up in global growth on track,”
But Elsa Lignos, global head of FX strategy at Royal Bank of Canada, points out that the growth was probably driven by borrowing.
China Q2 GDP was firmer than expected (6.9%y/y, cons 6.8%, prior 6.9%), driven by a sizeable pick-up in industrial production. Sentiment was dampened by the Stats Bureau’s acknowledgement that H1 economic growth was “hard won”.
Our Asia strategist calls that an understatement to be sure; GDP growth was clearly buffered by significant credit expansion to ensure headline growth remained at or above target. Most recognise the dangerous imbalances/can-kicking involved in China’s growth strategy.
MSCI World Index hits new record high
The news that China’s GDP beat expectations drove shares up across Asia, although ironically Chinese investors didn’t share the enthusiasm.
The Hong Kong Hang Seng rose by 0.3%, while Korea’s Kospi and India’s Sensex gained almost 0.4%.
That helped to drive global markets to a new all-time high:
Mike van Dulken of Accendo Markets says “better-than-expected China GDP data” boosted confidence.
This after six years of slowing, suggesting successful management of stimulus.
However, the party didn’t reach China itself, where the Shanghai Shenzhen CSI 300 Index dropped by almost 1%.
The selloff was sparked by traders rushing to sell shares after the People’s Bank of China injected fresh liquidity into the system.
That caused some alarm on the trading floors, as Marketwatch explains:
“It’s reverse psychology,” said Hao Hong, managing director and head of research at BOCOM International. “If everything is fine, you don’t have to inject liquidity. But if they’re injecting liquidity, something must be wrong.”
Introduction: China beats expectations
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
China has got the new week off to a good start, by releasing growth figures that beat City expectations.
The Chinese economy grew at an annual pace of 6.9% in the last quarter, according to official government figures, matching China’s growth in January-March.
That beat analyst forecasts of 6.8%, and is ahead of Beijing’s target of growing GDP by 6.5% this year. This should calm concerns that China’s economy is heading for a hard landing, as its leaders try to shift away from manufacturing and towards a service-based economy.
The National Bureau of Statistics said the figures showed China’s economy had become “more stable, co-ordinated and sustainable”.
But the agency also struck a cautious notes, saying that :
Overall, the economy continued to show steady progress in the first half…but international instability and uncertainties are still relatively large, and the domestic long-term buildup of structural imbalances remain.
The NBS also warned that China’s economy also faces “many unstable and uncertain factors abroad”; perhaps a nod to president Trump’s protectionist rhetoric, or perhaps Britain’s exit from the EU….
Separate government figures also suggested that the Chinese economy seems to be holding up, despite persistent worries over the country’s growing debts.
They showed that:
- China’s factory output grew 7.6% in June from a year earlier, the fastest pace in three months,
- Fixed-asset investment expanded by 8.6% percent in the first six months of 2017 both beating forecasts.
- Retail sales rose 11.0% in June from a year earlier, the fastest pace since December 2015
I’ll pull some reaction together now….
Also coming up today:
The final estimate of inflation across the euro area is released this morning. It’s likely to confirm that the eurozone inflation rate dropped to 1.3% in June, taking some pressure off the European Central Bank to start tapering its stimulus programme.
In the US, we also get a new healthcheck on New York’s manufacturing sector.
- 10am BST: Eurozone Consumer Price Index for June
- 1.30pm BST: The US Empire Manufacturing (JUL)
at 3.09am EDT