Stocks Fall After Weak Chinese Data Weighs on Risk Sentiment – Daily Market Brief, May 16, 2022

European bourses are heading for a negative start on the open after dismal Chinese data and Russian tensions escalate.

·         Chinese retail sales & industrial output contract by more than forecast

·         German PPI rises to a record high, Eurozone economic forecasts are due

·         Gold edges lower but holds above $1800 for now

Asian stocks slipped, and the market mood soured as investors digested the latest Chinese data drop. Chinese industrial production contracted by -2.9% YoY after rising 5% in March and missed forecasts of 0.7% growth. Retail sales tumbled -11.1% YoY, down from -3.5% in March and almost twice as bad as the -6% decline forecast.

The shockingly weak data highlights the damage that lockdowns were inflicting on the world’s second-largest economy and is fueling fears of a global economic slowdown. The data from China is unlikely to improve anytime soon, given China’s strict zero-COVID policy. Even as some COVID lockdown restrictions were relaxed in Shanghai, they have been tightened in Beijing.

AUD/USD has fallen back below 0.69, bringing the 2022 low of 0.6830 back into sight, a 23-month low.

Inflation & recession fears

In Europe, concerns over surging inflation and slowing economic growth continue to weigh on the markets. German PPI inflation rose to a fresh record high in April of 23.6% YoY, up from 22.6% in March. Although this was slightly below the 24% forecast, it suggests that consumer prices still have further to rise.

Looking ahead, European economic forecasts are due to be released amid rising concerns of recession in the region and as momentum continues to build in the ECB for a July interest rate hike. The market will be looking to see the impact of the Ukraine war and surging inflation on growth forecasts.

The DAX booked a 2.5% gain last week, its first gain in 4 weeks. However, the index is set for a 0.2% fall on the open today as the index struggles around 14000 the psychological level and the 50 DMA.

EUR/USD is falling below 1.04 and appears to be at clear risk of further downside with support at 1.0350, the 2022 low.

Geopolitics

Tensions with Russia remain elevated and will remain in focus after Finland made its intentions to join NATO official, and with Sweden expected to follow suit shortly. Russia, meanwhile, threatened retaliation should these previously neutral countries join the alliance, marking an important change to the security environment in Europe and bringing more military power to the Baltic.

Gold

Gold fell 3.8% across last week, marking a fourth straight week of declines and its worst weekly performance in two months. USD strength, as the greenback reached a 20-year high last week, and expectations that the Fed will need to move faster to tame 40-year high inflation, have weighed on demand for the precious metal. While the price has risen off its three-month low of around $1800, it remains firmly below the 200 DMA, with momentum favouring the downside.

Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances, or needs.

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