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Chinese economy kicks off year with solid growth

The Chinese economy grew faster than economists had expected in the first quarter of the year, but the economic expansion wasn’t enough to keep markets in positive territory early in the week. Asian stocks continued to slide on Tuesday following losses on US equity markets on Monday, as the world awaited Israel’s response to Iranian air strikes at the weekend.

Shane Strowmatt, LGT
Temps de lecture
5 minutes
Chinese market
© Shutterstock

Gross domestic product (GDP) grew 1.6% in China in the first quarter when compared to the previous quarter, or 5.3% when compared to the same period a year earlier. Foreign demand - a key driver of the Chinese economy - helped drive growth as exports increased 14% on the year during the period. Other economic data released out of China on Tuesday missed the mark, however. Industrial output for the month of March was up 4.5% on an annual basis, while retail sales were 3.1% higher during the month, both coming in below market expectations. The GDP growth figure, however, was above market expectations and puts the world’s second-largest economy on track to reach its 5% growth target for the year after last year’s economic performance was underwhelming.

Solid Chinese economic expansion wasn’t enough to prop up markets in the Asia-Pacific region on Tuesday. The Shanghai Composite was 0.6% lower while Hong Kong’s Hang Seng Index was trading down 1.7%. South Korea’s Kospi was the region’s largest loser, down 2.4%. In Tokyo, the Nikkei 225 was trading down 1.6% and Australia’s S&P/ASX 200 lost 1.7%.

In New York, the major stock indices also closed lower to start the week, dragged down by concerns about how Israel may retaliate for air strikes by Iran at the weekend. The Dow Jones Industrial lost 0.7%, the S&P 500 closed down 1.2% and the Nasdaq-100 dropped 1.7% on Monday.

In individual stocks, Goldman Sachs shares were up 2.9% after the company reported first-quarter revenue and pre-tax profit above market expectations. Last week, poor quarterly results to kick off the first-quarter earnings season - particularly by competitor JPMorgan - had markets concerned that this quarter’s earnings season may not meet expectations.

In macroeconomic data out of the US, retail sales increased in March by 0.7% when compared with the previous month. That was somewhat slower than February’s 0.9% increase. The last months’ rise in retail sales contrasts with weakening consumer sentiment: the University of Michigan Consumer Sentiment Index slumped in April, largely due to higher inflation expectations, which limit consumers’ purchasing power. Retail sales are closely watched in the US where the consumer is the driver of the economy. A strong retail sales report sends a signal to the Federal Reserve (Fed) that the economy can withstand higher rates for longer as the Fed continues to watch the effects of its restrictive monetary policy on the economy.

In Europe, the Swiss Producer and Import Price Index increased by 0.1% in March when compared with the previous month. Petroleum products were the main driver of the increase. When compared with the same month of last year, the index fell by 2.1% with imported products accounting for most of the decrease. Consumer inflation slowed to 1% in March and has been below the Swiss National Bank’s (SNB) target of 2% inflation for 10 months in a row. That caused the SNB to cut rates last month, which put pressure on the franc, thereby increasing the price of imports. Switzerland’s SMI gained a mild 0.1% on Monday, while the Euro Stoxx 50 closed 0.6% higher.

Corporate news in focus: Quarterly figures from Bank of America, Johnson & Johnson, Morgan Stanley.

Economic data in focus: UK unemployment rate, Italian Consumer Price Index, Germany’s ZEW Indicator of Economic Sentiment, US building permits, Canadian Consumer Price Index, Bank of England Governor Andrew Bailey interview.


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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
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