Tracking China’s slowdown

Residential buildings under construction in Shanghai

(Reuters) – A look at the day ahead in Asian markets from Jamie McGeever

Another day, another surge in U.S. bonds yields, and another sell-off on global markets. On top of that, Asian markets wake up on Friday to a raft of key economic indicators that could confirm the extent of China’s slowdown.

The August readings for house prices, urban investment, industrial production, retail sales and unemployment will paint a pretty clear picture of where the Chinese economy is right now. And it is not a pretty picture.

Any hopes for a rebound in the second half of the year have been dashed by renewed COVID-19 lockdowns and the deepening property sector slump. Trade growth has also slowed, while on Thursday the offshore yuan fell to a fresh two-year low through the 7.00/dollar barrier.

As part of a sweeping global downgrade, economists at Barclays cut their 2022 Chinese GDP growth forecast to 2.6% from 3.1% – “its lowest annual growth outcome in many decades” – and cut next year’s outlook to 4.5% from 5.3%.

Some economists are even expecting sub-2% growth this year.

Following the offshore yuan’s fall below 7.00/$, markets will be alert to possible PBOC action to prevent the fall from snowballing. The dollar has jumped 10% in the last five months, and 5% in the last two – huge moves for the tightly managed yuan.

But given the seemingly unstoppable rise in the two-year U.S. bond yield it will be difficult to tame the dollar, something the BOJ will also be acutely aware of as the yen falls back towards 145.00/$.

South Korean unemployment data and RBA governor Phillip Lowe’s parliamentary testimony could also give their respective currencies direction on Friday.

Key developments that should provide more direction to markets on Friday:

South Korea unemployment (August)

RBA governor Philip Lowe speaks

Sony earnings (Q2)

Euro zone inflation (August)

U MIch inflation expectations (September)

(Reporting by Jamie McGeever in Orlando, Florida; Editing by Jonathan Oatis)