China’s Economic Data Leaves Market Eager for Stimulus Measures

China's Economic Data Leaves Market Eager

In today’s data release from China, the country’s second-quarter GDP growth rate came in at +0.8% quarter-on-quarter, slightly exceeding expectations. However, the year-on-year figure of 6.3% fell short of projections, indicating potential revisions to historical data.

Date: July 17, 2023

Place: New Delhi, India

While June’s industrial output outperformed predictions with a 4.4% increase compared to the previous year, retail sales fell short at 3.1%, and property sales experienced the largest monthly drop in 2023 thus far. This mixed bag of results has left market participants discontented.

Chinese shares declined, and the yuan experienced a depreciation, as investors sought indirect stimulus amid concerns that Beijing might allow further devaluation of the currency. Analysts anticipate that more substantial fiscal spending is required, but the Chinese government appears reluctant to fulfill these market expectations promptly. The central bank maintained one-year rates unchanged on Monday, with analysts now waiting for a Politburo meeting later this month to unveil potential new measures.

Meanwhile, the earnings season is in full swing, and all eyes are on Tesla (TSLA.O) as the first tech giant to report on Wednesday. The company’s performance will be crucial in determining whether it can meet the high expectations set for it.

Bank of America (BofA) predicts that Tesla and the six other tech behemoths will achieve an average earnings growth of 19% over the next 12 months, more than double the estimated 8% growth for the rest of the S&P 500 companies.

It is worth noting that the astounding surge in the market capitalization of these seven tech giants will prompt a re-weighting of the Nasdaq on July 24. Consequently, their collective weighting will decrease from 56% to 44% of the index. Apple’s (AAPL.O) weighting will decline by around 4 percentage points to 12%, while Microsoft (MSFT.O) will experience a similar drop to 10%.

Goldman Sachs anticipates that passive funds tracking the Nasdaq (NDX) will rebalance their portfolios, but the impact at the individual stock level is expected to be limited based on the experience from a special rebalance in 2011.

Key developments that could potentially influence markets on Monday include ECB Board member Fabio Panetta attending the G20 Finance Ministers and Central Bank Governors meeting in Gandhinagar, India. Additionally, ECB President Christine Lagarde will deliver a pre-recorded speech, while board members Frank Elderson and Philip R. Lane will participate in the 9th ECB conference focusing on central, eastern, and south-eastern European (CESEE) countries. Furthermore, the Federal Reserve Bank of New York will release the Empire State Manufacturing Survey for July.


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