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China/U.S. talks, Goldman cuts China growth, BoE - what's moving markets

Published 06/19/2023, 06:04 PM
© Reuters

Investing.com -- The U.S. and China have held talks to try and iron out differences, while Goldman Sachs joins the queue of banks downgrading China's growth forecasts for this year. The central bank beauty contest continues this week, with the Bank of England expected to continue hiking interest rates.

1. U.S. and China hold talks

U.S. Secretary of State Antony Blinken met his Chinese counterpart Qin Gang on Sunday, in what both called candid and constructive talks aimed at smoothing the many differences between the two global economic superpowers.

The discussions would likely have included grievances over trade, the state of the global semiconductor industry as well as the status of self-governed Taiwan and Beijing's human rights record.

While it’s unlikely this meeting, the first visit to China by a U.S. secretary of state in five years, will result in concrete progress, it’s hoped that the fact the two sides are talking should prevent disagreements between the rival powers from descending into conflict.

2. Goldman cuts China growth forecasts

Goldman Sachs joined the growing band of major banks that are taking a more pessimistic view of the strength of China's post-pandemic recovery, cutting its forecasts for the Asian giant's economic growth.

The influential investment bank lowered its full-year real gross domestic product growth forecast for the world's second-biggest economy to 5.4% from 6%, and cut its 2024 growth forecast to 4.5% from 4.6%.

Goldman follows the likes of Bank of America, JPMorgan, UBS and Standard Chartered in lowering their growth forecasts, citing the downturn in the country’s property market as the main reason.

"We judge that growth headwinds are likely persistent while policymakers are constrained by economic and political considerations in delivering meaningful stimulus,” Goldman analysts said, in a note released late Sunday.

3. Europe, Asia head lower; growth concerns weigh

European and Asian stock markets headed lower Monday, as investors continue to fret about the global economic outlook, although activity is thin as the U.S. markets are on holiday due to the Juneteenth holiday.

At 05:30 ET (09:30 GMT), the DAX index in Germany had dropped 0.5%, the FTSE 100 in the U.K. was down 0.3% and France’s CAC 40 had fallen 0.5%.

This followed on from losses in Asia, where Japan’s Nikkei 225 fell 1%, the Hang Seng in Hong Kong dropped 0.7% and China’s Shanghai Composite index 0.5%.

There is a lack of major earnings and economic data to digest Monday, but investors continue to worry about slowing growth, not only in Europe, with the eurozone entering a recession in the first quarter of the year, but also in China, a major regional growth driver.

Additionally, the Federal Reserve has indicated that further rate hikes could be coming in the summer months as it tries to stamp down on inflation, potentially sending the world’s largest economy into recession.

4. Central banks remain in spotlight

There are more central banks in the spotlight this week, starting with the People’s Bank of China on Tuesday.

The PBOC cut a couple of lending rates last week in an attempt to stimulate its flagging economy, and is expected to follow up with a lowering of its prime loan rate by 10 basis points as it attempts to take the pressure off its troubled property market.

On the flip side, the Bank of England is widely expected to continue its long-running hiking cycle, increasing interest rates by another 25 basis points on Thursday with the country’s inflation rate the highest in the G7, more than four times its 2% target.

Rate hikes are also expected in Norway and Switzerland this week, while Hafize Gaye Erkan hosts his first policy-setting meeting as newly appointed Turkish central bank governor.

President Tayyip Erdogan was elected to his third term last month, and his appointment of Erkan, a former Wall Street banker, has raised expectations that Turkey will abandon the unorthodox policies that have seen the lira plummet to all-time lows.

5. Oil slips, handing back some of last week’s gains

Crude prices edged lower Monday, on concerns the faltering economic recovery in China will hit demand from the world’s largest crude importer in the second half of the year.

By 05:30 ET, U.S. crude futures were 0.3% lower at $71.72 a barrel, while the Brent contract fell 0.3% to $76.61 per barrel.

Both benchmarks recorded their first weekly gain this month last week, helped by the Federal Reserve pausing its run of monetary tightening and expectations China would further stimulate its struggling economy.

However, a number of major banks have cut their 2023 gross domestic product growth forecasts for China this week, including Goldman Sachs [see above], on concerns over the post-COVID recovery in the world's second-largest economy.

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