Asia Stocks Attempt A Rebound; China Data Pose A Concern

Asian stock markets attempted a rare climb on Monday, after Wall Street's rebound from record lows, but investors were bracing for bad news from Chinese GDP statistics due later in the session.

China's yearly retail sales are anticipated to decline by 6.1%, while industrial output is expected to increase by only 0.4%. Given that new bank lending in China fell to its lowest level in almost four and a half years in April, risks are to the downside.

"The reports should emphasize the economic damage caused by the country's zero-COVID policy," said Bruce Kasman, head of economic research at JPMorgan. "We anticipate contractions in production and demand indices," he said.

"After lowering our GDP prediction for the entire year to 4.3%, the policy response to weakening remained unexpectedly muted," he continued. The CNY is where the action is since the PBOC has remained silent despite the recent decline.

Beijing permitted a further reduction in mortgage loan interest rates for select homebuyers on Sunday, and there were rumors that the central bank would reduce its medium-term lending rate by 10 basis points on Monday.

MSCI's broadest index of Asia-Pacific equities outside Japan rose 0.3% after falling 2.7% last week to a two-year low.

Even though a weak yen provided some help for exporters, Japan's Nikkei index gained 1.2% after falling 2.1% last week.

In early trading, S&P 500 stock futures gained an additional 0.3%, while Nasdaq futures gained 0.6%. Both remain well below their yearly peaks, with the S&P having declined for six consecutive weeks. 

The U.S. consumer confidence reached an 11-year low at the beginning of May due to sky-high inflation and rising interest rates, which elevated the stakes for April retail sales coming on Tuesday.

DOWNGRADING GROWTH

The Federal Reserve's extreme hawkishness has led to a dramatic tightening of financial conditions, prompting Goldman Sachs (NYSE:GS) to reduce its GDP growth prediction for 2022 from 2.6 percent to 2.4 percent. Annual growth in 2023 is now anticipated to be 1.6%, down from 2.2% previously.

Jan Hatzius, an economist at Goldman Sachs, stated, "Our financial conditions index has tightened by more than 100 basis points, which should exert a drag on GDP growth of roughly 1 percentage point."

"We anticipate that the current tightening of financial conditions will continue, in part because we believe the Federal Reserve will deliver as anticipated."

Futures contracts suggest 50 basis-point increases in both June and July and rates between 2.5-3.0 percent by the end of the year, up from the current range of 0.75-1.0%.

Fears that all of this tightening may result in a recession prompted a rebound in bonds last week, with 10-year rates falling 21 basis points from their peak of 3.20 percent. Monday morning, yields were up slightly at 2.94 percent.

The dollar retreated from a two-decade high, though not by much. The dollar index was recently seen at 104.550, close to its all-time high of 105.010.

The euro remained at $1.0397, having reached a low of $1.0348 last week, while the dollar rose to 129.44 yen, having fallen to 127.54 yen last week.

Bitcoin was last up 5.1 percent at $31,277, having hit its lowest level since December 2020 last week following the collapse of so-called stablecoin TerraUSD.

In commodities markets, gold remained under pressure from high rates and a strong dollar, and was last up 1.1% at $1,810 per ounce, having lost 3.8% in the previous week.

Oil prices increased as U.S. gasoline prices reached a record high, China appeared poised to loosen its restrictions, and investors grew concerned that supplies would become scarce if the European Union banned Russian oil. [O/R]

Brent was quoted at $112.28 a barrel, up 73 cents, while U.S. crude rose 79 cents to $111.1 per barrel. [O/R]