Early Morning Call: Europe indices hesitant as Australia GDP, China exports dampen mood

APAC overview

APAC equity markets were mixed on Wednesday after economic data in Australia and China dampened the mood of investors. Australia's economy grew at the weakest pace in a year and a half last quarter. Gross domestic product (GDP) rose 0.2% quarter-on-quarter (QoQ), easing from 0.6% in the previous quarter.

Consumers have become increasingly selective in terms of their spending, privileging essential goods and services. Household consumption rose only by 0.2% in the first three months of the year, contributing 0.1% percentage points to GDP.

Back on March 21st, at the end of the first quarter, the Reserve Bank of Australia (RBA) considered that its monetary policy was then in restrictive territory. Indeed, the latest GDP data showed that rising interest rates have started to bite. Minutes after the release of GDP data, Australia's Treasurer Jim Chalmers said inflation was proving more stubborn than hoped for, supporting the recent RBA decisions.

Since that March meeting, the RBA has hiked its cash rate twice more, taking it to an 11-year high of 4.1%, and is still saying more tightening may be required.

In China, exports shrank much faster than expected in May, by 7.5% year-on-year (YoY). It was the largest decline since January. Imports fell too, albeit at a slower pace of 4%. This is yet another indication that China's manufacturing sector is struggling to recover. This poor export performance reflects weak demand for Chinese goods. Some economists now believe that in that context of global weakness, China needs to rely more on domestic demand. This adds pressure on government to boost domestic consumption.

Macroeconomics

In the UK, the Halifax house price index stayed unchanged in May compared to the previous month, down 1% YoY. In Germany, industrial production rose by 0.3% in May MoM, after a 2.6% drop the previous month.

Are we up for an interest rate hike in Canada? A majority of economists don't think so, but they expect one at the Bank of Canada's (BoC) subsequent meeting in July. The last time the Bank of Canada raised its overnight rate was on January 25. The Bank decided to hold rates at its last two meetings, as it considered borrowing costs restrictive enough to bring inflation down.

Canadian inflation peaked earlier than most economies in June last year at 8.1% and has since declined to 4.3% in March. But then we had a rebound in April to 4.4%.

The BoC has room to raise interest rates sooner rather than later. Canada's economy has been fairly resilient so far this year. GDP growth for the first three months hit 0.8% QoQ, and the unemployment rate has been stuck at a 49-year low for the past five months.

Equities

Boeing warned on Tuesday evening it could be forced to slow deliveries of its 787 Dreamliner. The American aircraft maker discovered a new production flaw, and now needs to inspect all 90 jets in its inventory, and believes it will take two weeks to fix each aircraft.

The SEC crackdown on the crypto industry is escalating. The US securities regulator issued a lawsuit against Coinbase on Tuesday, the second in two days against a major crypto exchange. On Monday, the SEC targeted Binance, the world's largest cryptocurrency exchange. The two cases are of a different nature. The SEC accused Binance and its CEO Changpeng Zhao of operating a "web of deception". As for Coinbase, the regulator considers it is operating illegally because it failed to register as an exchange.

If successful, these lawsuits could trigger a major change in the crypto world, asserting the SEC's jurisdiction over it. So far, the industry's argument is that tokens do not constitute securities and should not be regulated by the SEC.