Chinese recovery remains sluggish – UOB

Pablo Piovano FXStreet

UOB Group’s Economist Ho Woei Chen, CFA, reviews the latest set of Chinese data releases.

Key Takeaways

The moderation in China’s industrial production came within expectation while retail sales and fixed asset investment slowed more than expected in May. New home prices also rose at its slowest pace in four months and the youth unemployment rate hit a fresh record high in May.

China’s post-Covid recovery is running out of steam with risks that the economy may weaken further without stronger fiscal and monetary policy support.

As expected, the PBOC cut the benchmark 1Y medium-term lending facility (MLF) rate by 10-bps to 2.65% today following a 10-bps reduction in the key 7-day reverse repo rate to 1.9% on Tue. The PBOC net increased liquidity as it conducted CNY237 bn of 1Y MLF to replace CNY200 bn that matured this month.

We expect another 25-bps reduction in banks’ reserve requirement ratio (RRR) in 2H23 as well as more measures to boost the property market recovery.

We maintain our 2Q23 GDP growth forecast for China at 7.8% y/y which is measured against the low base during Shanghai’s two-month Covid-19 lockdown in 2Q22. With stronger monetary and fiscal support, we think China’s full-year GDP growth is still on track to reach our forecast of 5.6% in 2023. Having said that, the downside risks have certainly increased.

Author

Pablo Piovano

FXStreet

Born and bred in Argentina, Pablo has been carrying on with his passion for FX markets and trading since his first college years.

GBP/USD clings to daily gains near 1.3350

GBP/USD holds just in positive territory around 1.3350 on Friday as the Greenback keeps a vacillating price action. With Fed rate hike expectations easing and US markets closed for the Independence Day holiday, Cable remains on track to post solid weekly gains.

EUR/USD remains sidelined around 1.1440

EUR/USD holds on to its recent gains and consolidates around 1.1440 at the end of the week as the US Dollar lacks clear direction. In the meantime, trading conditions remain subdued, with volatility constrained by the closure of US markets for the Independence Day holiday.

Gold flirts with two-week highs, targets $4,200

Gold extends its recovery for a third straight day, advancing toward the $4,200 mark per troy ounce on Friday. The precious metal looks set to snap a four-week losing streak as softer-than-expected June US NFP data prompt investors to scale back expectations of further Fed tightening.

Crypto Today: Bitcoin, Ethereum, XRP advance amid renewed capital inflows

Bitcoin maintains its upward momentum, holding above the $61,000 mark at the time of writing on Friday. Major altcoins such as Ethereum and Ripple are also posting gains, signaling a modest uptick in market sentiment and renewed risk appetite among investors.

The Iran war failed to trigger a recession. Can the US economy keep defying expectations?

Nearly four months after the start of the Iran war, the US economy remains remarkably resilient. While the conflict initially triggered a severe disruption to global energy markets and a sharp rise in Oil prices, recent diplomatic progress between Washington and Tehran has eased concerns about a prolonged supply shock.

Kevin Warsh offers no policy clues: Why markets still got their answer

Financial markets came to Sintra looking for clues about the Federal Reserve's (Fed) next move. They largely left with confirmation that Fed Chair Kevin Warsh intends to make those clues much harder to find.