Asia wrap: Wall Street downgrades China's GDP to start the week


The China GDP downgrades have darkened the outlook in a week many had high hopes. 

For now, the darker economic outlook has pushed backed optimism around the PBoC stimulus and hopes for a thawing in frosty China-US relations.

Property investment growth declined to -10% yoy, and property-related products underperformed in detailed industrial production and retail sales data. With no “easy fix” on the horizon, the property market’s weakness and its negative impact on the rest of the economy will likely persist.

Adding to the Monday morning malaise, China’s on-budget fiscal revenue growth (on a year-on-year basis) plunged in May from April, led by slower tax revenue growth as aging demographics and higher youth unemployment have everyone wondering who is left to pay the taxes.

Oil prices are taking a bearish view on Wall Street China GDP downgrades, but with rate cuts and policy stimulus on the cards, we could expect an oil prices tug of war to ensue between the current weaker growth momentum and increased policy support.

Yuan is weaker on the GDP downgrades, but the US dollar will still find support from wider USD-CNY interest rate differentials as China is set to cut its key lending rate tomorrow.