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China growth accelerates, eye on more stimulus

We could be seeing more targeted mini stimulus measures to keep the growth momentum going, particularly with accommodative measures for the property market.

A Chinese flag
Source: Bloomberg

China’s Q2 GDP was a tick above consensus forecasts, coming in at 7.5% versus the estimated 7.4%. It was expected to be in line with Q1’s 7.4% growth, the slowest pace in 18 months.

The slight bounce should not have come as a large surprise, considering the stream of positive indicators ahead of the data release.

Over the past two months, manufacturing and export figures have been encouraging and pointing towards an uptick. Yesterday, there were also some signs of increased economy activity from new loans data.

In today’s round of China data, we also saw:

  • Industrial production grew 9.2% in June year-on-year, compared with 8.8% in May.
  • Fixed asset investment also edged up, at 17.3% in the first half of the year, versus 17.2% between January and May.
  • Retail sales were largely in line at 12.4% growth in June, but slightly below May’s increase of 12.5%.

Market reaction muted
There were little significant market uplift despite the relatively positive China data, suggesting the news was largely priced in.

Interestingly, the news was a downwards catalyst for AUD/USD, which has been weakening over the past few days. The pair is now trading below its 50 daily moving average (DMA) and is testing its support at 0.9330.

Spot FX AUD/USD chart
Click to enlarge

The downside factor may have come from some property related data that was released soon after the GDP numbers. Growth in China’s real estate slowed in the first half of the year, amid slowing sales and construction activity.

In the first half of the year, property investment grew 14.1%, cooling from 14.7% in the first five months. Sales in terms of floor space fell 6%, moderating from a dip of 7.8% over the same period. New property construction in the first six months dropped 16.4% year-on-year.

The property sector is still looking a bit sluggish despite recent moves by authorities to shore up investor sentiment. However, we could start to see more targeted accommodative measures.

After the average home prices in China fell for the first time in May, this Friday’s housing prices data for June will be interesting to watch. It could provide a good indication of how much more help is needed. Any disappointing numbers will likely weigh down on property stocks.

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