Markets pause for breath after China GDP data

London — European shares paused their new year rally and Asian equities slipped after China reported weak fourth-quarter economic data on Tuesday, keeping investors on edge over the prospects of a global recession.

The Euro Stoxx 600 lost 0.2%, slipping from Monday’s nine-month high. Global equities have enjoyed a rally so far in 2023, spurred by hopes of a rebound in China’s economy and an easing of prices pressures in the US and Europe.

But the Chinese data showed that the world’s second-biggest economy grew 2.9% in the fourth quarter of last year, beating expectations but underscoring the toll exacted by Beijing’s stringent “zero-Covid” policy.

China’s growth for 2022 of 3% was far below the official target of about 5.5%. Excluding a 2.2% expansion after Covid-19 first hit in 2020, it was the worst showing in nearly half a century.

Asia-Pacific shares outside Japan widened losses in response, and were last down 0.4%. Shares in Hong Kong dropped 0.8% and China’s benchmark CSI300 Index clawed back losses to close flat.

In Europe, China-exposed financials HSBC and Prudential fell 1% and 0.4% respectively. Economy-sensitive consumer staples such as Unilever and Danone also fell more than 1% each.

Analysts said investors were taking stock of how economies would expand as inflation peaks and central bank tightening of monetary policy slows, with the China data underscoring doubts whether it could act as a spur.

“What will be the thing that reinvigorates growth?” said Gaël Combes, head of fundamental research at Unigestion. “China is probably unlikely to provide the lift is has provided in the past, like during the global financial crisis.”

Wall Street was set to open slightly lower after a public holiday on Monday, with e-mini futures for the S&P 500 down 0.3%.

Under pressure

The dollar index bounced from a seven-month low of 101.77 a day ago, holding at 102.30, while the yen stayed close to seven-month highs as investors held their breath for a potential policy shift at the Bank of Japan (BOJ).

The yen steadied around 128.51/$ on Tuesday after reaching 127.22 on Monday, with traders braced for sharp moves when the BOJ concludes a two-day meeting on Wednesday.

The central bank is under pressure to change its interest rate policy as soon as Wednesday, after its attempt to buy itself breathing room backfired, emboldening bond investors to test its resolve.

Eurozone bond yields inched up from month lows recorded late last week, but trading in bonds globally was cautious ahead of the result of the BOJ meeting.

Across the world, the R-word continues to loom large.

Two-thirds of private and public sector chief economists surveyed by the World Economic Forum in Davos expected a global recession this year, with some 18% considering it “extremely likely” — more than twice as many as in the previous survey conducted in September 2022.

As equities rallied this year, other riskier assets also gained. Top cryptocurrency bitcoin has clocked a gain of about a quarter in January, leaping more than 20% in the past week alone, putting in on course for its best month since October 2021. It was last trading flat at $21,208.

Spot gold was down 0.5% at $1909.23 an ounce.

Reuters