Decline in stock markets due to slow growth of the Chinese economy

On Asian stock markets on Monday, stock prices fell after a strong rise last week, as investors were disappointed by the slower-than-expected growth of the Chinese economy.

The MSCI index of the Asia-Pacific region was down 0.3 percent around 7:00 a.m., after jumping 5.6 percent last week. Meanwhile, stock prices in Australia, South Korea, and Shanghai fell between 0.1 and 1.2 percent. In Japan, the market is closed due to a holiday, while the Hong Kong stock exchange is closed due to hurricane threats.

After a strong market rise last week, investors were disappointed this morning by data showing that China’s gross domestic product (GDP) grew by 6.3 percent year-on-year in the second quarter, less than the 7.3 percent that analysts expected in a Reuters poll. The Chinese statistical office stated that they believe GDP will grow this year as the authorities expect, around 5 percent, but that a challenging period lies ahead.

It was also reported that industrial production rose by 4.4 percent year-on-year in June, above expectations, while retail sales growth fell short at 3.1 percent.

– All these data suggest that the post-COVID recovery has slowed. It is also concerning that youth unemployment has reached record levels – says Carol Kong, an economist at CBA.

The euro exchange rate against the dollar jumped to its highest levels in 16 months

Also, in global markets, the euro exchange rate against the dollar rose more than two percent last week, to its highest levels in 16 months, as inflation in the U.S. eases, leading investors to expect that the U.S. Fed will soon end its cycle of interest rate hikes.

The dollar index, which shows the movement of the U.S. dollar against the other six major world currencies, fell 2.3 percent last week to 99.96 points, close to its lowest level in 15 months. Meanwhile, the dollar exchange rate against the European currency slid 2.4 percent, bringing the euro price to 1.1227 dollars, and at one point even 1.1245 dollars, the highest level in 16 months.

The dollar price also fell against the Japanese currency, by 2.4 percent, to 138.80 yen. The dollar came under pressure after a series of data showed that inflation in the U.S. is easing.

Among other things, it was reported last week that consumer prices rose by 0.2 percent in June compared to the previous month, while on a year-on-year basis, they rose by 3 percent, the lowest since early 2021. It was also reported that producer prices in June rose only 0.1 percent year-on-year, marking their slowest growth since mid-2020.

All these are better data than analysts expected, reinforcing investors’ belief that the U.S. central bank will soon end its cycle of interest rate hikes, which has been ongoing for more than a year.

At the June meeting, Fed leaders left interest rates unchanged until they see how the previous tightening of monetary policy will affect the economy and inflation. Several Fed officials indicated that further rate hikes would be needed to curb inflation, but also that the end of the rate hike cycle is approaching.

In the money market, there is more than a 90 percent chance that the Fed will raise rates by 0.25 percentage points at this month’s meeting. However, most analysts also believe that this will be the last increase this year. Due to all this, the dollar index recorded its largest weekly decline this year last week.

On the other hand, the euro has strengthened significantly as the gap between interest rates in the U.S. and the eurozone is expected to narrow.

Analysts believe that the European Central Bank, unlike the Fed, will continue to raise rates as inflation in the eurozone, although easing, remains at high levels.