Stocks and oil slide as horrific China data fuels recession fears

Traders in front of a screen with trading numbers in red at the Stock Exchange of Thailand building in Bangkok, Thailand, March 13, 2020. REUTERS/Juarawee Kittisilpa/Files

SYDNEY (Reuters) – Asian stock markets tumbled on Monday and oil prices tumbled after shockingly weak data from China confirmed the massive damage the shutdown is inflicting on the world’s second-largest economy.

China’s retail sales for April fell 11.1% year-on-year, nearly double the fall forecast, while industrial production fell 2.9% when analysts were eyeing a slight increase. Read more

“The data paints a picture of a struggling economy that needs more aggressive stimulus and a rapid easing of COVID restrictions, neither of which is likely to be rolled out anytime soon,” said Mitul Kotecha, head of emerging markets strategy at TD Securities. .

“China’s weaker growth path will increase pressure on its markets and fuel further deterioration in the global economic outlook, affecting risk assets. We expect further depreciation of the Chinese yuan.”

In Europe, EUROSTOXX 50 and FTSE futures were down 0.3%. S&P 500 stock futures lost early gains, dropping 0.6%, while Nasdaq futures were down 0.5%. Both are far from last year’s highs, as the S&P has fallen for six straight weeks.

China’s central bank also disappointed those hoping for a rate cut, although on Sunday Beijing allowed an additional cut in mortgage rates for some home buyers. Read more

Monday’s data overshadowed the news that Shanghai aims to reopen widely and allow normal life to resume from June 1. read more

Chinese blue chips (.CSI300) It fell 0.8% in reaction, while commodity currencies took a hit led by the Australian dollar, which is often used as a liquid proxy for the yuan.

MSCI’s broadest index of Asia Pacific shares outside Japan (MIAPJ0000PUS.) It lost early gains to hold, after a 2.7% drop last week, when it hit a two-year low.

Japan’s Nikkei Index (.N225) It clung to a 0.5% gain, after losing 2.1% last week although a weak yen provided some support for exporters.

Rising inflation and higher interest rates knocked US consumer confidence to an 11-year low in early May and raised the risks for April retail sales scheduled for Tuesday. Read more

slow growth

The ultra-hawkish Federal Reserve has prompted a sharp tightening of financial conditions, prompting Goldman Sachs to cut its 2022 GDP growth forecast to 2.4% from 2.6%. Growth in 2023 is now seen at 1.6% YoY, down from 2.2%.

“Our financial conditions index has tightened by more than 100 basis points, which should create a drag on GDP growth of about 1 percentage point,” said Jan Hatzius, an economist at Goldman Sachs.

“We expect the recent tightening in financial conditions to continue, in part because we believe the Fed will live up to what has been priced in.”

Futures are pointing to a 50 basis point rise in both June and July and rates between 2.5-3.0% by the end of the year, from the current 0.75-1.0%.

Fears that tightening could lead to a recession drove a rally in bonds last week, which saw 10-year yields fall 21 basis points from peaks at 3.20%. Early Monday, yields slipped again, hitting 2.91%.

The pullback has pulled the dollar back from a two-decade high, but not by much. The dollar index was last at 104.560, close to a peak of 105.010.

The euro settled at $1.0403, after falling to $1.0348 last week. The dollar lost ground against the yen, which appeared to have secured a safe haven bid in the wake of the China data, and fell to 129.02 yen.

In cryptocurrencies, Bitcoin was last up 2% at $3,0354, after touching its lowest level since December 2020 last week following the collapse of TerraUSD, the so-called stablecoin.

In the commodity markets, gold was pressured by higher yields and a strong dollar and was last seen at $1,809 an ounce after losing 3.8% last week.

Oil prices reversed course as dire Chinese data raised demand concerns.

Brent lost $2.31 to $109.24, while US crude fell $2.14 to $108.35.

Reporting from Wayne Cole. Editing by Sam Holmes and Clarence Fernandez

Our criteria: Thomson Reuters Trust Principles.