China’s disappointing GDP data casts a shadow over Asian markets

Shanghai — Asian stocks slipped further on Friday as China posted its weakest economic growth since the global financial crisis, adding to market concerns about trade disputes, rising US interest rates and Italy’s free-spending budget.

The MSCI’s broadest index of Asia-Pacific shares outside Japan was 0.2% weaker following China’s latest GDP reading. Australian shares fell 0.3% and Japan’s Nikkei average was 1.1% lower.

A weak Wall Street on Thursday set the tone for Asian trade. The Dow Jones Industrial Average fell 1.27%, the S&P 500 lost 1.44% and the Nasdaq Composite dropped 2.06%.

“Markets continue to digest the combination of higher US rates, ongoing trade tension and Chinese growth concerns,” analysts at ANZ said in a note.

On Thursday, the flight to safe-haven assets partly dampened rising US treasury yields. Still, early in Asia on Friday, the 10-year yield rose to 3.1767% from the US close on Thursday of 3.175%.

The two-year yield, sensitive to expectations of higher Fed fund rates, edged up to 2.8741%.

China’s economic growth in the third quarter slowed to 6.5%, its weakest pace since 2009 and below expectations, as a campaign to tackle debt risks and the trade war with the US weighed on the economy.

“Weakness is largely coming from the secondary industry- most notably manufacturing,” said Betty Wang, senior China economist at ANZ. “We may review our fourth-quarter forecasts. Property investment continues to hold up which may provide some support.”

Shares in China, which initially extended losses after the figures were released, rallied as investors digested statements from senior regulators pledging support for private firms and companies facing liquidity problems.

The benchmark Shanghai Composite index was 0.5% higher at about 3am GMT, after hitting near four-year lows on Thursday, in part hurt by widespread concern that plunging share prices could lead to a spike in margin calls.

Analysts cautioned that China’s economy would continue to face difficulties.

“Looking ahead, economic outlook is not optimistic with exports facing further headwinds as US tariffs kick in and demand from emerging countries ebbs,” said Nie Wen, an analyst at Hwabao Trust in Shanghai.

China’s premier said this week that the economy faces increased downward pressure, but that government will take measures to stabilise growth.

In the latest trade war volley, the US is requesting that a World Trade Organisation (WTO) dispute resolution panel look into tariffs imposed by China, the EU, Canada and Mexico in retaliation to U.S. tariffs on steel and aluminium.

Further fraying market nerves, the European Commission on Thursday said a draft 2019 budget from Italy was in “particularly serious non-compliance” with EU rules, setting the stage for a possible unprecedented rejection of the country’s fiscal plan.

The euro was up 0.06% at $1.1459, having lost 1.3% in a month, while the dollar index, which tracks the greenback against a basket of six major rivals, was a touch higher at 95.943.

The dollar was up 0.18% against the yen at ¥112.38 .

Oil prices ticked higher after falling on Thursday. US crude was up 0.3% at $68.88 a barrel and Brent crude was trading at $79.47 a barrel, 0.2% higher.

Gold also rose, with spot gold rising 0.2% to $1,227.94/oz. 

Reuters