On Friday, Asian equities closed higher in hopes that the Chinese government is nearing or at the end of its regulatory crackdown. The new regulations are part of an effort to address the excess debt around the housing industry.
But that doesn’t mean European and US markets will follow that pattern. That’s because there might be some risk-off ahead of a series of important data releases from both China and Japan over the weekend.
China is back in focus after the number of covid cases has started rising again. They are still in the double digits, which is well below any other large country. However, China’s zero-tolerance policy towards covid and the rumors of potential lockdowns should the contagion spread, have raised renewed worries about the supply chain.
In fact, China is unlikely to relax anti-covid measures that have exacerbated transportation bottlenecks, particularly in shipping, if covid case numbers keep rising.
The data coming out early Monday morning, or late Sunday depending on where you are located, could give some valuable insight into the global inflation trends. From there, we can get a better understanding of equities’ performance through the coming months.
Japan falling behind
First to report is Japan’s Q3 GDP. Analysts expect the figure to show quarterly growth of -0.2% compared to 0.5%. The slump is generally due to covid concerns and export issues, particularly to China, their largest customer. They also anticipate the annual GDP to come in at -0.8% compared to +1.9% prior.
Naturally, if Japan beats expectations with a positive result, then it could support further optimism about Japan avoiding a second dip recession.
However, a more negative result could simply drag down equities. Particularly since there isn’t much expectation that the BOJ will do more to prop up the economy.
China’s uncertain consumer
Next up is Chinese Retail Sales data, one of the key indicators for the New Zealand dollar. Chinese retail sales have generally stabilized in a post-pandemic pattern. However, the concerns over housing and increasing costs could hit consumer demand. With that in mind, Retail Sales could drop to 3.5%, from 4.9% in the prior reading.
Lower demand could also help the PBOC get inflation under control.
At the same time, we have the release of the October House Price Index. The expectation for the index is to show a minor cooling to 3.6% growth from 3.8% growth.
The other indicators of note
Economists project China’s unemployment rate to remain steady at 4.9%. However, last month marked a record low, so a pullback of a couple of decimals is unlikely to worry the market. That said, if it comes in lower than expected it could further help risk sentiment in the market.
Finally, the projection for industrial production is to cool off a bit as well, at 3.0% growth from 3.1% growth prior. Generally, that wouldn’t be all that concerning, but supply constraints have likely distorted the figure.
Typically there is more production in October to meet orders for Christmas. Nonetheless, in the current environment, consumers could have already placed orders ahead of time.