Global shares sapped by poor China growth, dollar gets weekly mauling

China's economy grew at a slightly less-than-expected 6% in Q3 but traders seemed to be taking comfort that swift stimulus from Beijing and central banks in recent weeks could avert serious downturn

Global stocks flatlined after China posted its weakest growth in nearly three decades on Friday, while the dollar headed for its worst week in almost four months having been pummelled by the pound’s and euro’s Brexit rallies.

China’s economy grew at a slightly less-than-expected 6 per cent in the third quarter, but traders seemed to be taking comfort that swift stimulus from Beijing and major central banks in recent weeks could avert a more serious downturn.

Asia did see a 1.2 per cent slump in Chinese shares but Wall Street futures were steady and European bourses had mostly recovered from their early wobbles after carmarker Renault issued a screeching profit warning.

China’s news didn’t come as too much of a surprise either, given the trade war with the US and after the IMF had cut its global forecasts again this week.

“You can’t get away from the fact that China is slowing, but it’s not slowing more than we thought,” said head of global macro strategy at State Street Global Markets Michael Metcalfe.

“We know that Q4 is going to be a soft patch, but to a degree policymakers are ahead of this, so as long as we don't have an escalation of the trade war now, I think markets can handle it.”

Doubts about whether the Brexit deal would be approved in the British Parliament were still sky high. Swathes of lawmakers, who are either reluctant about Brexit or worried the deal is not a clean enough break, will debate the deal in a rare Saturday sitting, meaning Monday trading will certainly be lively.

Helping to alleviate immediate trade war worries, China had said on Thursday that it hoped to reach a phased agreement in its trade dispute with the US, as soon as possible.

Reflecting the cautious mood, the safe-haven ¥ strengthened, with the dollar falling 0.13 per cent to 108.51. The yield on the benchmark 10-year Treasury notes edged up though to 1.764 per cent, compared to a US close of 1.755 per cent on Thursday.

Brexit progress meant European yields were also nudging up, with German Bund yields holding at -0.40 per cent, the highest since early August.

The Bund yield is now up 16 bps since Irish and British leaders said on October 10 they saw a path to a Brexit deal, which boosted risk appetite and weakened demand for safe-haven assets like bonds.

“The (China) GDP print has weighed on short-term sentiment and we have seen regional stock markets and oil contracts edge lower because of that,” said Jeffrey Halley, senior market analyst for Asia Pacific at brokerage OANDA.

Crude demand growth tends to track economic growth trends, but Halley said China’s oil needs won’t recede any time soon. Reuters

Underlining that view, Chinese official data released on Friday showed robust refinery throughput in September, rising 9.4 per cent from a year earlier to 56.49 million tonnes, on increases from new refineries and some independent refiners resuming operations after maintenance.

Gold dipped to $1,488 per ounce.