Asia stocks struggle after dire China data

Asian share markets were struggling to sustain even a minor rally on Monday after shockingly weak data from China underlined the deep damage lockdowns were doing to the world's second-largest economy.

China's April retail sales plunged 11.1 per cent on the year, almost twice the drop forecast, while industrial output dropped 2.9 per cent when analysts had looked for a slight increase.

The risks had been to the downside given new bank lending in China hit the lowest in nearly four and half years in April.

China's central bank also disappointed those hoping for a rate easing, though Beijing on Sunday did allow a further cut in mortgage loan interest rates for some home buyers.

News that Shanghai was relaxing some of its lockdown restrictions offered only cold comfort to investors.

Also Read — Shanghai aims to reopen more Covid-shut businesses, Beijing battles on

Chinese blue chips shed 0.4 per cent in reaction, while commodity currencies took a knock led by the Australian dollar which is often used as a liquid proxy for the yuan.

MSCI's broadest index of Asia-Pacific shares outside Japan were still up 0.2 per cent, though that followed a 2.7 per cent slide last week when it hit a two-year low.

Japan's Nikkei clung to gains of 0.6 per cent, having lost 2.1 per cent last week even as a weak yen offered some support to exporters.

EUROSTOXX 50 futures and FTSE futures went flat. S&P 500 stock futures lost early gains to ease 0.4 per cent, while Nasdaq futures fell 0.3 per cent.

Both are far from last year's highs, with the S&P having fallen for six straight weeks.

Sky-high inflation and rising interest rates saw US consumer confidence sink to an 11-year low in early May and raised the stakes for April retail sales due on Tuesday.

Downgrading growth

A hyper-hawkish Federal Reserve has driven a sharp tightening in financial conditions, which led Goldman Sachs to cut its 2022 GDP growth forecast to 2.4 per cent, from 2.6 per cent. Growth in 2023 is now seen at 1.6 per cent on an annual basis down from 2.2 per cent.

"Our financial conditions index has tightened by over 100 basis points, which should create a drag on GDP growth of about 1pp," said Goldman Sachs economist Jan Hatzius.

"We expect that the recent tightening in financial conditions will persist, in part because we think the Fed will deliver on what is priced."

Futures imply 50 basis-point hikes in both June and July and rates between 2.5-3.0 per cent by year end, from the current 0.75-1.0 per cent.

Fears that all this tightening will lead to recession spurred a rally in bonds last week, which saw 10-year yields drop 21 basis points from peaks of 3.20 per cent. Early Monday, yields were easing again to reach 2.91 per cent.

The pullback saw the dollar come off a two-decade top, though not by much. The dollar index was last at 104.560, and within spitting distance of the 105.010 peak.

The euro stood at $1.0394, having got as low as $1.0348 last week. The dollar did lose ground on the yen which seemed to get a safe-haven bid in the wake of the China data, slipping to 128.88 yen.

In cryptocurrencies, Bitcoin was last up 2 per cent at $30,354, having touched its lowest since December 2020 last week following the collapse of TerraUSD, a so-called stablecoin.

In commodity markets, gold was pressured by high yields and a strong dollar and was last at $1,811 an ounce having shed 3.8 per cent last week.

Oil prices reversed course as the dire Chinese data rekindled worries about demand.

Brent lost $1.22 to $110.33, while US crude shed $1.04 cents to $109.45.