US stocks dragged global indices lower last week, but the Friday bounce in China could be sustained.
CH50: Daily Chart
The CH50 bounced to 12,680 and may get a chance to push higher early in the week.
US stocks were hit hard by continued hawkishness by the Federal Reserve, and they may bounce in a quiet data market this week. The US market has GDP data released on Friday, but traders may see the latest drop as overdone.
Economic activity in China looked better in August, but there was still some weakness in the property sector. Industrial production, measuring the performance of sectors such as manufacturing and mining, was 4.5% higher in August from a year earlier, according to the National Bureau of Statistics (NBS).
Retail sales also jumped 4.6% from a year earlier, compared to the weak 2.5% increase in July.
However, in the property sector, Sino-Ocean, a major state-backed property developer, said it would halt repayments on its offshore borrowings, another sign of the ongoing property crisis. Property investment data fell by 8.8% in the first eight months of the year, compared to a year ago, according to the NBS.
Larry Hu, chief economist for China at Macquarie Group, said despite “widespread pessimism,” the worst may be over for the country, which has suffered from weak export demand in a slow global economy and its worst ever real estate slump.
“Going forward, the headline growth numbers could improve on policy support and base effects, but the pace will be modest,” he said, noting weakness in the property sector as well as low confidence among business owners and consumers.
China’s government has been criticised for making modest rate cuts of 0.10% to stimulate the economy, but that could signal that things are not as bad as they seem. The PBOC also has much larger stimulus tools available if there is further fallout from the property sector. At present, it seems to be contained.
With a light economic calendar early in the week, global stocks may get a chance to pause from recent pressures.
