European Markets Trade Volatile In Cautious Trading After Weak China Data

Bridgette Randall
15 Aug, 2023
Frankfurt

European markets inched higher amid growing worries of worsening economic conditions in China. 

European bond yields edged up and UK gilts traded above 4.6% for the second day in a row and French bond yield jumped stayed above 3% for the second week in a row. 

The ruble rebounded after the Bank of Russia lifted its key lending rate after the currency plunged in the previous session. 

The central bank lifted interest rates by 350 basis points to 12% to shore up the currency after an emergency meeting. 

The ruble rebounded from as low as 102 against the U.S. dollar to 95.56 after the rate hike announcement. 

Investors are also awaiting U.S. retail sales data for July and the last batch of earnings from major retailers and tech companies. 

 

Japan GDP Expanded On Positive International Trade 

Japan's GDP expanded for the second quarter in a row on rising exports and falling imports, the government data showed. 

GDP in the second quarter accelerated to 1.5% from the upwardly revised 0.9% increase in the first quarter. 

The economy has been on the mend despite the weak consumer spending but it was the international trade that drove most of the gain. 

Exports in the second quarter rose 3.2% from the previous quarter and imports fell 4.3% in the period, contributing 1.8 percentage point growth.   

Market sentiment was cautious after China reported weaker-than-expected retail sales, investment and unemployment data. 

The People's Bank of China lowered its key lending rates as the property market faces confidence crisis and byers stayed on the sidelines hoping prices to fall further. 

 

China Cut Rates After Weak Economic Data Show Deepening Property Market Stress

The People's Bank of China unexpectedly lowered its one-year medium term lending facility rate by 15 basis points to 2.5%.

The central bank also lowered its seven-day reverse repo rate by 10 basis points to 1.8%, responding to weakening economic backdrop.   

Property investments declined at a faster pace in January to July of 8.5% after falling at 7.9% in January to June, the National Bureau of Statistics reported Tuesday. 

Weak property investment dragged down growth in fixed-asset investment to 3.4% in the first seven months to July from 3.8% in June.

Property accounts for one-fifth of all fixed-asset investment and contributes to about 14% of GDP growth. 

Private investment continues to remain subdued and declined 0.5% in the first seven months, compared to an increase of 7.6% by state owned enterprises. 

From a year ago, industrial production increased 3.7% in July, slower than 4.4% in June and retail sales slowed to 2.5% in July from 3.1% increase in June from a year ago. 

Urban jobless rate rose to 5.3% in July from 5.2% in June and the statistical agency said it will no longer provide youth jobless rate data. 

Youth unemployment rate among 16 to 24 years rose to record high of 21.3% in June from 20.8% in May.  

 

Europe Indexes & Yields

The DAX index increased 0.05% to 15,911.80, the CAC-40 index rose 0.05% to 7,351.19 and the FTSE 100 index fell 0.6% to 7,461.20.  

The yield on German government bonds traded at a one-month high, lifting yields in the region for other nations as traders assessed inflation risks. 

The yield on 10-year German bonds increased to 2.67%, French bonds traded higher to 3.22%, the UK gilts edged up to 4.62% and Italian bonds increased to 4.33%.

The euro edged lower to $1.093, the British pound to $1.261 and the U.S. dollar fetched 87.76 Swiss cents.

Brent crude decreased $0.04 to $86.27 a barrel and the Dutch TTF natural gas decreased €1.62 to €36.05 per MWh.