Oil Updates — prices set to snap two-week losing streak on China demand optimism

Beijing: China̵7;s economy faltered in May with industrial output and retail sales growth missing forecasts, raising expectations that Beijing will need to do more to weather a shaky post-pandemic recovery.

The economic recovery seen earlier this year has lost momentum in the second quarter, prompting China’s central bank to cut some key interest rates this week for the first time in nearly a year, and more are expected to come.

“The post-pandemic recovery appears to have run its course, an economic double whammy is almost confirmed, and we now look forward to lower GDP growth than our consensus of 5.5 percent and 4.2 percent for 2023 and 2024, respectively.” There are significant downside risks,” Nomura analysts said in a research note following the latest disappointing data.

The National Bureau of Statistics (NBS) said on Thursday industrial production expanded 3.5 percent in May from a year earlier, slower than a 5.6 percent expansion in April and slightly below the 3.6 percent increase expected by analysts in a Reuters poll. Yes, because manufacturers struggle. With weak demand at home and abroad.

Retail sales – a key measure of consumer confidence – rose 12.7 percent, missing forecasts for 13.6 percent growth and slowing from April’s 18.4 percent.

“All data points so far have shown consistent signs that economic momentum is weakening,” said Zhiwei Zhang, president of Pinpoint Asset Management.

Data from the factory survey and trade to credit growth and home sales showed signs of weakness in the world’s second-largest economy. Crude steel production fell year-on-year and month-on-month in May, while daily coal production also fell, NBS data showed.

The soft run of data has defied analysts’ expectations for a sharp pickup, given a comparison with last year’s much weaker performance, when many cities were under strict COVID-19 lockdowns.

Analysts say the data also reinforces the case that more stimulus is needed as China faces deflationary risks, rising local government debt, record youth unemployment and weak global demand.

Bruce Pang, chief economist at Jones Lang LaSalle, said, “Insufficient domestic demand and sluggish external demand could constrain momentum in the current months, leaving China with a more gradual U-shaped recovery trajectory on its month-over-month growth trajectory.” going along.”

Pang said stimulus would be the first step, along with large-scale policy easing. “But it could take two to three years to shore up the slow economic recovery.”

Following the downbeat data, JPMorgan cut China’s 2023 full-year GDP growth forecast to 5.5 percent from 5.9 percent earlier. After badly missing the 2022 target, the government has set a modest GDP growth target of around 5 per cent for this year.

Rate of interest

China’s central bank cut the interest rate on its one-year medium-term lending facility on Thursday, easing for the first time in 10 months, paving the way for a cut in benchmark lending prime rates next week. The move was expected after it cut some short-term rates earlier in the week.

The yuan hit a six-month low after the rate cut and China’s stock markets soared, with the benchmark CSI 300 rising 1.6 percent and Hong Kong’s Hang Seng index climbing 2.2 percent.

Markets are also betting on more stimulus, including measures targeting the volatile asset sector, once a key driver of growth.