Asian markets brace for weak China data

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Asian markets brace for weak China data

Asian share markets were attempting a rare rally on Monday after Wall Street managed a bounce from deep lows, though investors were braced for bad news from Chinese economic data due later in the session.

In China's annual retail sales, the industrial output is only 0.4%, and the forecasts are for a fall of 6.1%. The new bank lending in China hit the lowest level in nearly four and half years in April, so there are risks to the downside.

Bruce Kasman, head of economic research at JPMorgan said the reports should highlight the economic damage caused by the country's zero-COVID policy and that we expect contractions in production and demand indicators.

He said the policy response to weakness remains surprisingly tame after lowering our full-year GDP forecast to 4.3%. The PBOC has been silent despite the recent sharp depreciation of the CNY, which is where the action is. There was talk that the central bank might cut its medium term lending rate by 10 basis points on Monday after Beijing allowed a further cut in mortgage interest rates for some home buyers.

The broadest index of Asia-Pacific shares outside Japan MIAPJ 0000 PUS fell by 0.3% after shedding 2.7% last week to hit a two-year low.

Japan's Nikkei went up 1.2%, having lost 2.1% last week, even as a weak yen offered some support to exporters.

In early trade, S&P 500 stock futures went up a further 0.3%, while Nasdaq futures added 0.6%. Both are not close to last year's highs, with the S&P falling for six straight weeks.

Inflation and rising interest rates saw the U.S. consumer confidence drop to an 11 year low in early May and raised the stakes for April retail sales due to Tuesday.

A hyper-hawkish Federal Reserve has led to a tightening of financial conditions, which led to Goldman Sachs cutting its 2022 GDP growth forecast to 2.4%, from 2.6%. The growth in 2023 is now at 1.6% on an annual basis, down from 2.2%.

Goldman Sachs economist Jan Hatzius said that the financial conditions index has tightened by over 100 basis points and should cause a drag on GDP growth of about 1 pp.

In part because we think the Fed will deliver on what is priced, we expect that the recent tightening of financial conditions will continue. The futures imply 50 basis-point hikes in June and July and rates between 2.5 -- 3.0% by the end of the year, from the current 0.75 -- 1.0%.

A rally in bonds last week saw 10 year yields drop 21 basis points from peaks of 3.20% due to fears that all this tightening will lead to a recession. The yields were up a shade at 2.94% early on Monday.

The dollar came off of a two-decade top, though not by much. The dollar index was last at 104.550, and was within a spitting distance of the 105.010 peak.

The euro was as low as $1.0348 last week, while the dollar went up to 129.44 yen after dipping as deep as 127.54 last week.

The last time it was up 5.1% at $31,277 was in December 2020, after the collapse of TerraUSD, a so-called stable coin.

In commodity markets, gold was under pressure due to high yields and a strong dollar, and was last up 1.1% at $1,810 an ounce, having lost 3.8% last week.

China looked ready to relax the pandemic restrictions and investors worried that supplies would tighten if the European Union bans Russian oil, as U.S. gasoline prices reached a record high.

Brent LCOc 1 was quoted 73 cents higher at $112.28, while U.S. crude CLc 1 rose 79 cents to $111.28.