China’s Q2 GDP slowing slowly

High frequency surprise

In line with the market’s consensus, China’s Q2 GDP turned up at 6.2% YoY, marking the slowest pace in 27 years. Alongside Q1’s 6.4%, H1’s growth had altogether slipped to 6.3%. This was as demand slipped both domestically and externally while trade tensions escalated in the period. Following the likes of the continued deterioration of inflation and trade numbers, the GDP print had perhaps been the latest to drive home the need for further support from the authorities. One that the market will certainly be watching going forth.

Source: Refinitiv

Notably, however, one would have seen the high frequency figures from June surprising on the upside. This includes both the industrial output and retail sales at 6.3% YoY and 9.8% YoY respectively. Policies in place since the start of the year, including the boost to infrastructure investment, appear to have been effective in helping to shore up the figures.

The above said, the longer-term outlook remains one that is uncertain as global growth is expected to slow down, thus dragging on demand while the resumption of the US-China trade continues to confound the markets in terms of a timeline. Fortunately, the ‘bad news is good news’ mentality continues to hold and is backed up by the authorities’ stance that the ‘counter-cyclical measures to support the economy will show more obvious results during the second half’ post the GDP release. Look to a convergence in trend between the Chinese market and its’ soaring US counterpart, with the former due to be lifted by the abovementioned support expected in both fiscal and monetary policies.

Bad news is good news

The CSI 300 was seen responding with an uptick post the release of the GDP data with some sense that the GDP number may have room to disappoint in the Q2 release. The obliteration of the scenario coupled with the surprise seen in the high frequency readings have altogether helped to see a retracement of the early morning losses. Look to continued gains here as told above, although a short-term head-and-shoulder pattern coupled with the bearish momentum does not bode well for an immediate upturn.

Source: IG Charts

Meanwhile for the offshore yuan, we are seeing a rather flatline trend against the greenback. USD/CNH may continue in this state of consolidation amid the prolonged uncertainty on US-China trade while the US Dollar Basket likewise show signs of rangebound trade amid the opposing forces of data and the Fed within the market.

Source: IG Charts