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China’s Q2 Miss Sends Shivers Through Oil And Equities Markets

  • Slower than expected Q2 GDP growth in China, the world's second-largest economy, has stirred uncertainty in global markets, impacting US equity futures, European stocks, and commodities, and leading to a rise in bond yields.
  • Mega tech stocks such as Microsoft and Activision Blizzard saw premarket gains, with the latter company's shares rising following the denial of FTC's bid to pause a deal.
  • Wheat futures have seen a significant increase after Russia terminated a grain-export deal.

US equity futures were flat, erasing a modest earlier gain, while European stocks and oil retreated as bonds rallied after the latest Chinese data dump delivered more evidence of a slowdown in the world's second-largest economy, where Q2 GDP rose just 6.3%. below the 7.1% consensus forecast. At 7:30am, S&P futures were down 0.1% to 4,531 while Nasdaq 100 futures were fractionally in the green. Bond yields are 3-5bp lower, with the benchmark 10Y at 3.78%; the USD is weaker again; commodities are mixed with wheat pricing spiking after Russia terminated the Black Sea Grain deal; base metals are lower after the soften China GDP print. Yellen said US should further de-escalate US-China tension, but lifting tariffs may be premature. Fed entered its blackout period ahead of its July 26th FOMC. On the calendar today, we get the Empire Mfg. index data today at 8.30am ET (-3.5 survey vs. 6.6 prior).

In premarket trading, mega cap tech stocks are mostly higher, led by shares in Microsoft and Activision Blizzard which rose after a US appeals court denied the FTC’s bid to pause the deal. Separately, Microsoft also says it has a binding agreement to keep the “Call of Duty” franchise on the Sony PlayStation platform. Activision Blizzard rose 4.2% in US premarket trading on Monday; Microsoft rose as much as 0.9%. Here are some other premarket movers:

  • Chewy rises 4.5% in premarket trading on Monday after Goldman Sachs raised the recommendation on the online pet-supplies retailer to buy from neutral, saying margins could steadily expand over the next five years as the company grows its private label and healthcare businesses.
  • Paramount Global shares decline 2.2% in premarket trading after Mission: Impossible — Dead Reckoning Part One, the seventh installment of the action franchise starring Tom Cruise, took in less than projected at the box office over its debut weekend in the US and Canada.
  • Shares of electric-vehicle makers rose in premarket trading on Monday after BYD reported a three-fold increase in first-half net profit, with electric-vehicle sales showing little impact from a price war that has roiled the industry.Among premarket movers: Tesla rose 1.7% and Lucid was up +2.1%.

The MSCI ACWI of stocks worldwide dipped 0.1% on Monday after surging 3% last week. Shares in mainland China were the worst performers in Asia. After a week of historic stock-market gains, investors started Monday on a downbeat note after data that showed China’s growth for the second quarter missed estimates and its youth unemployment rose to a fresh, and dangerous, record high of 21.3%.

Indeed, the narrative that Chinese shoppers coming out of Covid lockdowns would be able to carry the global economy, despite rising US and European interest rates is dead and buried as economic reports continue to signal slowing momentum, sparking growing speculation that Beijing will have to put some action behind its endless words of "imminent" stimulus.

“China growth weakness has been brewing in the background for months,” said Pooja Kumra, senior European rates strategist at Toronto Dominion Bank. “Clearly growth has not been able to keep pace with expectations.”

While oil prices slumped as usual on the latest Chinese economic mess, wheat futures jumped after Russia terminated a grain-export deal, jeopardizing a key trade route from Ukraine, one of the world’s top grain and vegetable oil shippers.

With its heavy dependence on the Chinese import market, European stocks are especially vulnerable. Companies tied to energy and raw materials together make up about 12% of the Stoxx Europe 600, and consumer discretionary industries account for 11%. Indeed, European stocks are on the back foot after disappointing economic data from China hit risk sentiment. The Stoxx 600 is down 0.4% and set for its largest drop in almost two weeks. Luxury goods stocks are leading declines after Richemont signaled slowing demand in its quarterly update. JPMorgan strategists expect further weakness in the region driven by lower bond yields as well as earnings disappointments. Here are some other notable premarket movers:

  • Luxury-goods makers LVMH, Hermes and Richemont slump and lead declines in European companies exposed to China, after data showed the nation’s economy grew more slowly than expected in 2Q
  • Argenx shares jump as much as 27%, the most in more than three years, as analysts say the most recent trial success for its key drug Vyvgart marks another win for the Belgian biotech
  • MorphoSys shares rise as much as 6.7% after Deutsche Bank upgraded the German biotech to hold, ahead of the phase 3 read-out of its MANIFEST-2 study of pelabresib to treat myelofibrosis (bone cancer)
  • Oxford Nanopore shares gain as much as 3.9% after the DNA-sequencing firm’s 1H revenue beat estimates, with the company noting that growth continues to be driven by its expanding customer base
  • Victrex rises as much as 2.7% as Berenberg says the specialty chemicals company’s profit warning “spooked” the market, but may act as a clearing event
  • Gresham House gains as much as 57% after Searchlight agreed to buy the asset manager for 1,105p/share in cash, representing a 63% premium to the July 14 closing price
  • Bakkafrost falls as much as 12%, the most since September, after the salmon firm issued weak 2Q preliminary results and a profit warning, undermined in particular by a poor harvest in the Faroes
  • Coca- Cola HBC shares fall as much as 3.8%, the most since May 25, with Goodbody saying renewed Russia fears could weigh on the bottling firm’s stock price in the near term
  • Johnson Matthey shares gain as much as 1.7% in London, outperforming its sector that is suffering from disappointing China data, after Deutsche Bank upgrades UK-based chemicals firm to buy
  • GAM shares fall as much as 5.6% as company continues to report losses and declining assets under management, says Vontobel, adding the Swiss firm’s financial situation remains “very difficult”

Earlier in the session, Asian stocks declined as a slower-than-expected growth in China’s economy weighed on mainland equities. Trading in Hong Kong was delayed due to a typhoon.  The MSCI Asia Pacific excluding Japan Index fell as much as 0.4%, on course to end the gauge’s five-day winning streak. Shares in mainland China and Taiwan, such as TSMC, were the biggest drags on the index. Japan was closed for a holiday while Hong Kong canceled morning trading and will likely scrap the afternoon session as well because of typhoon Talim. The second-quarter GDP data showed that China’s economy grew slower than expected with consumer spending easing notably in June. The disappointing growth data further dented sentiment after the central bank scaled back its injection of medium-term policy loans despite weak growth. The key stock benchmark in the mainland dropped as much as 1.1%, the most in three weeks.

Monday’s weakness came after the MSCI Asia Pacific Index capped its best weekly rally since November last week, thanks to big gains in North Asia. Analysts said Asian stocks will likely resume gains after Monday’s breather, driven by the recovery in tech cycle and China’s stimulus hopes.

“We remain tactically positive on Asian stocks,” Nomura analysts including Chetan Seth said, adding that “the positive momentum in stocks can continue at least in the very near term.” They said that Korean markets will be the main beneficiary of a softer dollar and a resilient US economy due to their exposure to tech and artificial intelligence. South Korea’s benchmark index fell Monday after its best weekly gain since mid-January. Investors are also monitoring a slew of corporate earnings this week as the quarterly reporting season begins.

The relentless bubble that is Indian stocks advanced for a consecutive third session as benchmark Sensex posted its biggest surge this month to extend its record run, supported by gains in banks and software firms. The S&P BSE Sensex rose 0.8% to 66,589.93 as of 03:45 p.m. in Mumbai, its biggest single-day gain since June 30, while the NSE Nifty 50 Index advanced 0.8% to 19,711.45. HDFC Bank contributed the most to the index gain, increasing 2.1%, as the lender said net income rose 30% to 119.5 billion rupees ($1.45 billion) for the three months ended June 30, compared with 92 billion rupees a year ago. That surpassed analyst expectations for 114 billion rupees in a Bloomberg survey.   Out of 30 shares in the Sensex index, 18 rose, while 12 fell

In FX, the US Dollar was pressured against the yen and the euro, while the soft China data also impacted currency markets, where the Aussie and Kiwi are the worst performers among the G-10s; the yuan also declined. The yen and franc outperform on haven demand. “EUR/USD appears a bit overstretched in the short term and could face a correction this week,” ING strategists wrote in a note. Traders are almost fully discounting a 25 bps hike by the Fed later this month, and price roughly a one-in-three chance of a final tightening in November.

“Commodity currencies are weighed by weaker-than-expected China activity data, while the precipitous USD decline last week has also given them scope to retrace lower,” said Fiona Lim, senior currency analyst at Malayan Banking Berhad in Singapore. “However, there could still be some hopes for a more significant stimulus package to be announced for China that could keep” commodity-linked currencies such as AUD and NZD from declining too sharply, she said

In rates, treasuries advanced with 10-year note futures testing Friday session highs and yields richer by 5bp-6bp across belly of the curve into early US session. Stocks slip, supporting gains in Treasuries, which are outperforming core European rates. US 10-year yields around 3.79%, richer by 4bp vs Friday close; belly-led gains in Treasuries steepen 5s30s by 2bp on the day while 2s5s30s fly is richer by almost 3bp in early session.  Bonds extended a rally as investors looked to hedge any downturn in stocks and the economy. The yield on the 10-year Treasury fell five basis points to 3.77%. A busy week of dollar issuance is expected -syndicate desks are forecasting between $25 billion and $30 billion in new bond sales this week with banks leading the way coming out of earnings reports - and the resulting rate locks set to push TSY yields higher.


In commodities, crude futures declined with WTI falling 0.5% to trade near $75 as traders weighed disappointing Chinese economic data and restarting Libyan supplies against signs of a tightening market. Wheat futures jumped after Russia said it will not be extending the Ukraine grain deal.

While earnings season resumes in earnings tomorrow, today's calendar only sees the Empire Manufacturing report for July (exp. -3.5%, last 6.6)

Market Snapshot

  • S&P 500 futures down 0.1% changed at 4,531
  • MXAP down 0.1% to 168.55
  • MXAPJ down 0.2% to 533.68
  • Nikkei little changed at 32,391.26
  • Topix down 0.2% to 2,239.10
  • Hang Seng Index up 0.3% to 19,413.78
  • Shanghai Composite down 0.9% to 3,209.63
  • Sensex up 0.5% to 66,420.12
  • Australia S&P/ASX 200 little changed at 7,298.51
  • Kospi down 0.4% to 2,619.00
  • STOXX Europe 600 down 0.3% to 459.59
  • German 10Y yield little changed at 2.48%
  • Euro up 0.1% to $1.1240
  • Brent Futures down 1.6% to $78.60/bbl
  • Gold spot up 0.1% to $1,956.44
  • U.S. Dollar Index little changed at 99.83

By Zerohedge.com

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Leave a comment
  • Mamdouh Salameh on July 17 2023 said:
    This is a deliberate Western disinformation if not plain lying.

    How could China miss a claimed growth target of 7.3% in the second quarter of 2003 when both the World Bank and the IMF projected a growth rate of 5.2%-6.5% this year for it and China forecasted a growth rate for itself within this range and still grew by 6.3% in the second quarter of this year?

    This is the highest growth rate among the major economies of the world and more than five and eight times bigger than the growth rate of the US economy and the EUs respectively. It is the envy of the world.

    Moreover, how could such a claim be true when China’s crude oil imports broke its previous records and hit 12.15 million barrels a day (mbd) and its oil demand rose to the highest level in its history when it hit 17.37 mbd in May and accounted for 57% of the global demand growth of 3.0 mbd?

    If there were any shivers through oil and equities markets, they were not down to China's economy but to fears about the US banking system 's difficulties and more collapses among US banks.

    China’s economy is the world’s largest based on purchasing power parity (PPP). It is 25% bigger than the United States’ also based on PPP. It will continue to drive the global economy well into the future.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

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