Saturday, September 30

Marching into the clammy grip of recession

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A look at the day ahead in markets from Saikat Chatterjee. China’s economic growth data on Friday is a stark reminder of the challenges facing global policymakers.

Gross domestic product fell 2.6% in the second quarter from the previous quarter, official data showed, compared with optimistic expectations for a 1.5% decline. That means official forecasts of a 5.5% expansion this year now look a tad.

While COVID-19 lockdowns implemented across the world’s second biggest economy is a major factor, there is no hiding the fact that confidence remains weak and restrictions remain in place in vast swathes of the country.

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Prospects of weaker growth from China will certainly hurt the global economy but policymakers are in mood to relent. This week alone has seen steep hikes in Canada, New Zealand, South Korea and surprise tightening in Singapore and the Philippines.

Closer to home, Europe is grappling with fresh problems after the Italian government was plunged into crisis and the European Union cut growth forecasts for this year and the next.

And though two US Federal Reserve officials poured cold water on talk of a 100 bps interest rate hike later in July, there is no escaping the fact that US interest rates are set to more than double in less than a year.

No wonder investors are preparing for more pain.

The euro again dipped below parity verus the dollar and has slid 1.5% so far this week, the yen is hurtling toward 140 per dollar.

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And an inversion in the US Treasury yield curve, which signals economic recession, is becoming more entrenched. US and European stock futures are treading water. Key developments that should provide more direction to markets on Friday:

Data: Euro area May trade balance, US University of Michigan consumer sentiment survey, US June retail sales

Speaker’s corner: ECB’s Rehn, Fed’s Bostic, Bullard and Daly

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(Reporting by Saikat Chatterjee; editing by Dhara Ranasinghe)