Markets shored up by China’s 7.5 per cent growth
LONDON (AP) — Relief over China’s economic growth rate shored up stock markets yesterday despite weaker than anticipated US retail sales figures.
China, the world’s second-largest economy, grew 7.5 per cent from a year earlier in the second quarter. Though the figure is down on the previous quarter’s 7.7 per cent, there had been fears it might fall below seven per cent. A sharp drop would hurt companies around the world that have become increasingly reliant on breakneck Chinese growth to boost earnings.
“Despite the fact that the China growth figure represents an extension of the overall slowing trajectory, being the ninth slowdown in the past ten quarters, equity markets seemed broadly relieved,” said Brenda Kelly, market strategist at IG.
In the US, the Dow Jones industrial average was up 0.1 per cent at 15,479, while the broader S&P 500 was steady at 1,680.
Wall Street was not as strong as futures markets had been predicting. That was due to news that US retail sales only grew 0.4 per cent in June from the month before. That was half the rate expected and may mean downward revisions to US second-quarter growth forecasts. Retail sales account for around 70 per cent of US economic activity.
“After today’s (yesterday) report, there is a very real possibility that Q2 GDP will be less than one per cent for the second time in the last three quarters,” said Dan Greenhaus, chief global strategist at BTIG.
Though the figures suggest the US economy is not growing as quickly as anticipated, they may mean the US Federal Reserve starts reducing its monetary stimulus later. For weeks the Fed’s monetary stance has been the main driver in markets. The Dow and the S&P 500 struck all-time highs last week partly on an indication from the Fed that the monetary stimulus may be in place for longer than previously expected. At the moment, the Fed is buying around US$85 billion of assets in the markets, and that’s helped prop up stocks for months.
Some comfort came from forecast-busting earnings from Citigroup. The bank made US$1.25 per share during the second quarter, beating the US$1.18 per share predicted by analysts polled by FactSet.
It’s a busy week on the US corporate reporting front. Other reports expected this week include Coca-Cola, Goldman Sachs, Johnson & Johnson, Bank of America, Google and Microsoft. General Electric caps off the week Friday.