European markets have opened in the red, hit by the disappointing growth figures from China.
France’s CAC and Italy’s FTSE MIB have both lost around 0.7%, with Germany’s DAX down 0.4%
The UK’s FTSE 100 is holding up better, though, down around 0.2% — with utilities, energy firms and miners rallying.
European stocks posted their best weekly gains in seven months on Friday – but the mood is a little gloomier this morning.
Richard Hunter, Head of Markets at interactive investor, says:
The bullish start to the week implied by futures markets this morning hasn’t materialized, as growth and inflation fears resurface.
China’s assets have led the tumbled, after weaker than expected GDP, industrial production and fixed asset investment provided a sobering reminder of the middle kingdom’s precarious economic position, which was compounded by a speech delivered by the PBOC Governor Yi over the weekend a cut to the RRR isn’t yet on the cards.
People’s Bank of China Governor Yi Gang said on Sunday that the recovery remains intact even though growth momentum has “moderated somewhat.”
Asia-Pacific markets have also sagged, as Victoria Scholar, head of investment at interactive investor, flags here:
New construction starts in China have fallen for the sixth month running, as Beijing’s clampdown on borrowing hits property developers.
China’s September new construction starts slumped for a sixth straight month, the longest spate of monthly declines since 2015, as cash-strapped developers put a pause on projects in the wake of tighter regulations on borrowing.
New construction starts in September fell 13.54% from a year earlier, the third month of double-digit declines, according to Reuters calculations based on data released by the National Bureau of Statistics toaty.
That’s the sixth monthly fall in a row, and the longest downturn since 2015.
Property sales by floor area dropped 15.8% in September, down for a third month, according to Reuters calculations.
Investments by property developers fell by 3.5% — the first monthly decline since January-February last year at the height of the COVID-19 pandemic in China.
“All the data are poor,” said Zhang Dawei, chief analyst with property agency Centaline.
“Financing is hard, sales are tough, so of course, there has been no enthusiasm to build. For the first time in history, developers are encountering two blockages – blockages in sales and blockages in financing.”
Jim Reid of Deutsche Bank says ‘multiple headwinds’ hit China’s economy:
GDP expanded in Q3 by +4.9% on a year-on-year basis, which is a touch below the +5.0% consensus expectation and a shift down from the +7.9% expansion back in Q2. That’s come as their economy has faced multiple headwinds, ranging from the property market crisis with the issues surrounding Evergrande group and other developers, an energy crisis that’s forced factories to curb output, alongside a number of Covid-19 outbreaks that have led to tight restrictions as they seek to eliminate the virus from circulating domestically.
Industrial production for September also came in beneath expectations with a +3.1% year-on-year expansion (vs. +3.8% expected), though retail sales outperformed in the same month with +4.4% year-on-year growth (vs. +3.5% expected), and the jobless rate also fell back to 4.9% (vs. 5.1% expected).
Julian Evans-Pritchard, senior China economist at Capital Economics, said his consultancy’s “activity proxy” measure now pointed to a “sharp contraction” in GDP.
“Although some of the recent weakness in services is now reversing, industry and construction appear on the cusp of a deeper downturn.
“For now, the blow from the deepening property downturn is being softened by very strong exports. But over the coming year, foreign demand is likely to drop back as global consumption patterns normalise coming out of the pandemic and backlogs of orders are gradually cleared. All told, we expect growth of just 3% on our China activity proxy next year, the slowest pace since the global financial crisis.”
Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group Ltd has cut his full-year growth forecast to 8% from 8.3%, warning that:
“The outlook remains vulnerable with power shortages and property curbs.
Helen Qiao, chief Greater China economist at Bank of America Corp, told Bloomberg TV that:
“The investment side of demand is pretty weak, and the power crunch impact on the supply side is also pretty severe.”
Brent crude oil hits three-year high
The oil price has hit fresh highs this morning, despite China’s slowdown.
Brent crude touched $86 per barrel for the first time since October 2018.
US crude is trading at a fresh seven-year high, over $83 per barrel.
The oil price has been lifted by increased demand as economies reopen, and tight supplies, while the urging gas prices is leading power companies to burn more oil instead.
Analysts from ANZ bank said in a note on Monday that:
“Easing restrictions around the world are likely to help the recovery in fuel consumption.”
The approach of the Northern Hemisphere winter is also lifting demand.
Introduction: China’s economy slows as risks rise
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Beijing has warned that economic risks have risen at home and abroad, after China’s economic growth was dragged down by power shortages and its housing crunch.
China’s GDP grew by just 0.2% in July-September, new figures this morning show, the weakest quarterly growth on record.
That dragged growth over the last year down to just 4.9%, down from 7.9% in the previous quarter, and worse than expected.
The slowdown highlights that China is still struggling after the coronavirus pandemic, amid a slew of problems at home and abroad — from power outages and supply bottlenecks to ongoing Covid outbreaks and concerns about the struggling property sector typified by the Evergrande crisis.
The GDP report shows a worrying loss of momentum — industrial production grew just 3.1% year-on-year in September, rising just 0.1% during the month.
Growth in Fixed Asset Investment slowed to 7.3% from 8.9%.
Fu Linghui, spokesperson for the National Bureau of Statistics, told a press conference Monday that:
“After entering the third quarter, risks and challenges at home and abroad increased with the pandemic continuing to spread and the recovery of the world economy slowing down.”
China’s energy crunch has hit manufacturing growth. Recent power shortages led to rationing – causing some factories to shut down — prompting Beijing to order coal mines to increase production and plan to build more coal-fired power plants
Surging commodity costs have also hit manufacturing, pushing up factory gate inflation as manufacturers have passed on those costs.
China’s CSI 300 stock index fell by 1.3%, with concerns over Evergrande also hitting the real estate sector.
My colleague Martin Farrer explains:
The world’s second-largest economy has staged an impressive rebound from the pandemic but the recovery is losing steam. Problems including faltering factory activity, power cuts in the country’s crucial northern industrial heartland, and a slowing property sector have fanned speculation that policymakers may announce more stimulus measures in coming months.
Chief among the concerns about the giant property sector is the future of China Evergrande Group, the country’s number two developer which is struggling under a $300bn mountain of debt.
It has already missed three repayments on bonds that it owes overseas investors in US dollars, and trade in its shares in Hong Kong has been suspended since 4 October.
The crisis could reach a head this week when the 30-day grace period is up on the first tranche of repayments – worth $83.5m – that were missed in September .
But the head of China’s central bank, Yi Gang, said on Sunday the economy was “doing well” although it faced challenges such as default risks for certain firms due to “mismanagement”.
Reaction to follow…
2.15pm BST: UK industrial production report for September
3pm BST: NAHB housing market index (US) for October
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