Chinese stocks dipped again on Wednesday ahead of inflation data on Thursday.
Global stocks also faced FOMC minutes and will have German and US inflation data on Thursday.
CHI50 – Weekly Chart
On the weekly chart, the CHI50 is testing the critical support level from March at 12,600, so the data and party lines will be an essential guide for the index.
China’s National Congress meets on Sunday for a week-long delegation. President Xi Jinping is expected to be given a historic third term.
The CHI50 will offer traders some volatility next week as headlines from congress could include stimulus efforts for the economy or changes to commerce.
The country still suffers from its continued zero covid policies, and the economic data adds to global woes. RBC said oil could fall to $60 next year in a continued slowdown.
“It’s a weak demand story,” RBC said, and “stickier than expected inflation wreaking havoc on consumer demand, to China’s reluctance to pivot from consumption hindering COVID policies to a Fed overreach by moving fast and breaking things,” they added.
“Such macro threats are realised and lead to a recession-like backdrop where correlations between risk asset classes move sharply together as investors seek safe havens.”
The current themes hitting global stocks could continue this week as China has already suggested the covid strategy will remain. Chinese inflation on Thursday, followed by German and US numbers, could imply that traders expect a pivot on rate hikes too soon.
The IMF has already cut its GCP forecast for the world’s second-largest economy to 3.2 percent in 2022, slightly lower than the previous forecast of 3.3 percent. The Washington-based institution also said China’s forecast for next year would be cut from 4.6 percent to 4.4 percent. That is almost half the 8.1 percent expansion seen in 2021
The key will be the reshuffle of critical posts on the National Congress front. If Xi secures a third term, it could be seen as a continuation of state-led economics. Investors will keep an eye on the balance of power in government to see if there is an increase in liberal voices.
Before Sunday, keep an eye on those Thursday inflation numbers after Germany recorded a 10% record last month, which was well ahead of expectations. A higher number for Germany and the US could dent an already weak global stock environment.
