CHINA: Analyst Views On Growth Outlook/Stimulus Measures After Q2 GDP
Jul-16 14:29
- Commerzbank says that domestic demand faltered in June and while exports held up, the trade outlook in H2 is highly uncertain as US tariffs for trading partners have yet to be finalised. They expect Beijing to provide further support to real estate in the July Politburo meeting given the renewed weakness in the sector. Their concern is that once the stimulus stops, the macro picture will worsen. It is likely that the stimulus would only provide a temporary boost without lifting the underlying domestic demand weakness.
- DBS believes that weak private sector credit demand calls for easing. They expect additional 20bp LPR and 50bp RRR cuts to support growth in H2. Short-term 2-year CGB yields should face downward pressure. Long-term yields should remain supported by growth optimism from fiscal policy initiatives. Potential stimulus measures from the Politburo meetings, such as urban redevelopment projects, cash handouts, tax cuts and removal of restrictions on auto purchases, may lead to increased long-term bond issuance, likely resulting in a steeper yield curve.
- Goldman Sachs now expects China’s real GDP growth to fall from 5.3% y/y in H1 to 4.3% y/y in H2, due mainly to the adverse impact of US tariff increases and a much higher base (especially for Q4). With H1 real GDP growth still solid, they do not think policymakers see the immediate need to launch broad-based, significant stimulus in the near-term (including at the July Politburo meeting). Instead, GS expects incremental, targeted easing to help stem the property downturn and mitigate labour market pressures in H2.
- MUFG expects the government to further implement announced policy plans, but largely, fiscal stimulus is likely to remain reactive. They expect China GDP growth to decelerate to 4.2-4.3% y/y by Q4 this year. In their view, the growth deceleration and a narrower current account surplus is likely to put moderate pressure on CNY, with USDCNY reaching 7.25 by Q3. Risks for USD/CNY exist in both directions.
- SocGen says that despite a strong H1, the outlook is set to sour in H2 as export frontloading fades and the impact of US tariffs becomes more visible. Renewed weakness in house prices and the fading impact of subsidies also cast doubt over the sustainability of the consumption recovery. More stimulus towards housing and domestic demand will still be needed to achieve this year’s GDP target, likely after the summer. But for the upcoming July Politburo meeting, policymakers will likely be in a wait-and-see mode.
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CROSS ASSET: Crude & Gold Sold, Bonds & Stocks Bid On WSJ Iran Report
Jun-16 14:06
Crude oil (loses ~$2.50) and gold offered, Tsys (on inflation readthrough from lower crude) and equities bid, after WSJ sources note that “Iran has been urgently signaling that it seeks an end to hostilities and resumption of talks over its nuclear programs, sending messages to Israel and the U.S. via Arab intermediaries.”
- The piece goes on to note that “in the midst of a ferocious Israeli air campaign, Tehran has told Arab officials they would be open to return to the negotiating table as long as the U.S. doesn't join the attack. They also passed messages to Israel saying it is in the interest of both sides to keep the violence contained”.
- The BBDXY trades to fresh session lows on the news.
EQUITIES: US Program Buyer on the Open
Jun-16 13:43
- Program buyer on the Cash Open, 1499 names, the most since 27th May.
- Next Immediate resistance in SPX comes at 6059.40, last Week's high, and also the best printed level since February, the Index is now trading at 6021.42.
USDCAD TECHS: Southbound
Jun-16 13:41
- RES 4: 1.4200 Round number resistance
- RES 3: 1.4111 High Apr 4
- RES 2: 1.3861/1.4016 50-day EMA / High May 12 and 13
- RES 1: 1.3732 20-day EMA
- PRICE: 1.3542 @ 14:41 BST Jun 16
- SUP 1: 1.3535 1.0% 10-dma envelope
- SUP 2: 1.3503 1.618 proj of the Feb 3 - 14 - Mar 4 price swing
- SUP 3: 1.3473 Low Oct 2 2024
- SUP 4: 1.3410 1.764 proj of the Feb 3 - 14 - Mar 4 price swing
The trend needle in USDCAD continues to point south and fresh cycle lows last week and again today, reinforce a bearish theme. Support at 1.3686, the May 26 low and a bear trigger, has been cleared, confirming a resumption of the downtrend. This maintains the price sequence of lower lows and lower highs. Sights are on 1.3535 next, envelope-based support, and 1.3503, a Fibonacci projection.Resistance at the 20-day EMA is at 1.3732.
