Market Review for July 17, 2017

In China this morning, China’s economy expanded faster than expected in the second quarter, as traditional growth sectors continued to underpin the economy.

The National Bureau of Statistics said gross domestic product (GDP) expanded at an annualized 6.9% in the second quarter, unchanged from the previous quarter and well within the government’s target range of 6.5% to 7%.

Analysts in a median forecast called for quarterly growth of 6.8%. Compared to Q1, GDP expanded 1.7%, official data showed.

 Over the past four quarters, the Chinese economy has relied on government spending and access to cheap credit to fuel a faster than expected expansion. At the same time, efforts to curb a red hot housing market have largely come up short amid a resurgence of demand. Buyers anticipating further restrictions on housing have flooded the market after authorities introduced curbs back in March.

China’s dollar-denominated trade surplus with the rest of the world strengthened to $42.77 billion in June. Beijing’s surplus with the United States reached 20-month highs – a finding that could reignite political friction between the two economic superpowers.

The National Bureau of Statistics released a barrage of other data on Monday that pointed to faster expansion at the tail end of the second quarter. Retail sales, which measure private and government spending, rose 11% annually last month. That was a notable improvement from May’s 10.7% growth rate.

Industrial production, the broadest measure of factory output, expanded 7.6% in the 12 months through June. That was well above the previous month’s 6.5% growth pace.

Meanwhile, annual fixed-asset investment – a proxy for long-term spending – 8.6% in the six months through June.

Moving to the openings of the major markets , Asian stocks hit a two-year high on Monday, boosted by stronger-than-expected economic growth in China and bets that lackluster U.S. data will keep the Federal Reserve cautious about the pace of policy tightening. European markets also looked set for a positive start, 

Chinese blue-chips recouped steep early losses after data showed the world's second-largest economy grew at a slightly faster than expected clip of 6.9 percent in the second quarter, thanks to robust industrial output, retail sales and exports.

MSCI's broadest index of Asia-Pacific shares outside Japan extended earlier gains to climb 0.3 percent after the buoyant China readings. Japanese markets were closed for a holiday.

Australian shares were down 0.2 percent, while South Korea's KOSPI jumped 0.4 percent.

China stocks fell more than 2 percent in early trade, but the main indexes later recouped most of their losses as the buoyant GDP reading prompted investors to scoop up blue chips on expectations of better earnings.

 Asian markets also rode the updraft from a strong Wall Street performance on Friday.

The Dow and S&P 500 hit record highs after data showed consumer prices were unchanged in June and retail sales fell for a second straight month, pointing to tame inflation and subdued expectations of strong economic growth in the second quarter which could make Fed policymakers more cautious.

The chance of a Fed rate hike in December fell to 43.1 percent after the data, from 55 percent late on Thursday, according to the CME Group's Fedwatch tool.

The dollar index, which tracks the greenback against a basket of trade-weighted peers, hit a 10-month low early on Monday. It was trading almost 0.1 percent higher at 95.212 after losing 0.6 percent on Friday.

The dollar was 0.1 percent higher at 112.635 yen on Monday, after closing down 0.6 percent on Friday.

The Bank of Japan is expected to keep its monetary policy settings unchanged when it meets on Wednesday and Thursday.

Finally the black gold, Oil prices rose on Monday, supported by a slowdown in the growth of rigs looking for crude in the United States and because of strong refinery demand from China.

Brent crude futures were at $49.10 per barrel at 0454 GMT, up 18 cents, or 0.4 percent, from their last close.

U.S. West Texas Intermediate (WTI) crude futures were at $46.70 per barrel, up 16 cents, or 0.3 percent.

Both benchmarks extended gains from strong performances last week.

Analysts said the rising prices were a result of strong demand as well as signs that a relentless climb in U.S. oil production was slowing.

 U.S. drillers added two oil rigs in the week to July 14, bringing the total to 765, Baker Hughes said on Friday.

While that is the highest level since April 2015, the rate of additions has slowed. New rigs over the past four weeks averaged five, the lowest since November 2016.

"Given the usual time lag between price signal and drilling decision, the coming month, which also features the E&P (exploration and production) earning season, will be key," said U.S. bank Goldman Sachs.

In Asia, China's refinery activity indicates strong fuel demand.

Chinese refineries increased crude throughput in June to the second highest on record, with some independent plants raising output even as state oil majors prepare to take drastic steps to cut production during the peak summer season.

Throughput last month hit 46.08 million tonnes, or 11.21 million barrels per day (bpd), a 2.3-percent rise from a year ago and up from May's 10.98 million bpd, data from the National Bureau of Statistics (NBS) showed on Monday.

The number was just short of December's record high of 11.26 million bpd.

Some analysts cautioned against too much optimism. "These factors (China data and slowing U.S. drilling) would act more to put a bottom in place for oil prices rather than spurring growth to new highs," said Sukrit Vijayakar, director of energy consultancy Trifecta.

Brent is at similar levels as its average price since 2015, Thomson Reuters Eikon data shows. Most price changes since 2015 have occurred in the first half, or towards the end, of a year. Overall, the second halves of every year since 2015 have seen relatively little price movement.

View our full economic calendar for a daily roundup of major economic events.

 


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