Stocks are rising as tepid Chinese growth has traders ‘baying for more stimulus’

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REUTERS/Sue Ogrocki

  • Stocks climbed on Wednesday after China reported growth of 6.2% in the second quarter, its slowest rate in at least 27 years, fueling hopes of further government stimulus.
  • “Relatively lackluster growth in China has the market baying for more stimulus,” said Neil Wilson, chief market analyst for Markets.com.
  • More positively, Chinese industrial output, retail sales, fixed-asset investment, and real-estate investment have improved.
  • View Markets Insider’s homepage for more stories.

Stocks climbed on Wednesday after China grew at its slowest rate in at least 27 years, fueling hopes the government would ramp up its efforts to stimulate domestic demand.

China’s economy expanded by 6.2% in the second quarter, down from 6.4% in the first quarter, as its trade war with the US weighed on consumption and investment. The slowdown could spur authorities to cut banks’ reserve-requirement ratios for the seventh time since early 2018, according to Reuters. They could also increase earmarked tax cuts of nearly 2 trillion yuan ($291 billion) and special bond issuance by local governments worth 2.2 trillion yuan ($313 billion).

“Relatively lacklustre growth in China has the market baying for more stimulus,” said Neil Wilson, chief market analyst for Markets.com.

Some signs of stabilization tempered hopes the government would open the floodgates, however. Chinese industrial output swelled 6.3% from a year earlier, after slumping to a 17-year low in May. Retail sales surged 9.8%, their fastest rate of growth since March 2018. Fixed-asset investment reached 5.8%, up from 5.6% in the first five months of the year. Real-estate investment also rose by just over 10% from a year earlier, accelerating from a 9.5% rise in May, according to Reuters.

“The slowdown in the Chinese economy leads us to think that China is giving solid support to the economy to soften the impact of the trade war with the US and will certainly continue doing so in the coming quarters,” said Ipek Ozkardeskaya, senior market analyst at London Capital Group.

While President Donald Trump and Chinese counterpart Xi Jinping recently struck a truce that avoided additional tariffs, tensions still look set to rise. China is preparing to slap sanctions on the US after it agreed an arms deal with Taiwan, which it doesn’t recognize as a sovereign nation.

“Whilst we had a degree of détente at the G20, existing tariffs are still in place and no meaningful progress has been seen,” Wilson said. “Whilst for now the mood is upbeat, in the event of no deal, the lack of progress through the rest of the year would likely begin to drag on sentiment and affect equity markets.”

Here’s the market roundup as of 9:20 a.m. (4:20 a.m. ET):

Asian stocks climbed with the Shanghai Composite up 0.4%, the SZSE Component up 1%, and Hong Kong’s Hang Seng up 0.2%.

European equities were mixed with Germany’s DAX up 0.3%, Britain’s FTSE 100 down 0.2%, and the Euro Stoxx 50 almost flat.

US markets are set to open higher with futures underlying the Dow Jones Industrial Average, S&P 500, and Nasdaq up between 0.1% and 0.2%.

Oil prices were little moved with West Texas Intermediate crude flat at $60.20, and Brent crude up 0.2% at $66.80.

The gold price was up 0.3% at $1,417.

After trading north of $13,000 last week, Bitcoin has dropped to below $10,300 after Trump tweeted that cryptocurrencies are “highly volatile and based on thin air.”