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Chinese economy outgrows expectations, but housing still a lag
Chinese economic growth trounced expectations over the first three months of the year.
Gross domestic product climbed 5.3% over the period, according to China’s National Bureau of Statistics, against expectations for 4.6% growth.
The manufacturing sector drove growth, increasing by 6.7% year on year, buoyed by hi-tech and auto production.
However, housing data showed the market, which accounts for around a fifth of the world’s second largest economy, still faced crisis.
Sales value of newly built residential properties contracted by 30.7%, the fastest pace in more than eight years, while property investment fell 9.5%.
“You cannot manufacture growth forever,” Moody’s Analytics’ Harry Murphy Cruise commented, referencing China’s 5% annual growth target.
“We expect property to remain a major drag on growth this year,” ING Economics analysts added.
“Policies to stabilise the market will likely still be needed in the months ahead.”
Long-term sickness at record high
A record 2.8 million people are out of work due to long-term sickness, ONS figures showed on Tuesday.
This comes as the number of 16 to 64-year-olds who are economically inactive hit 9.4 million - the highest level since 2012 in the wake of the global financial crisis.
According to the ONS, long-term sickness is the most common reason for people being economically inactive, meaning they are neither in work, or seeking work.
ONS figures also showed a monthly and annual rise in unemployment to 4.2% between December and March, fuelling hopes that the Bank of England would soon cut base interest.
However, coinciding figures showing a 6% growth in headline earnings, excluding bonuses, clouded optimism.
“While tomorrow's inflation report will undoubtedly provide financial markets with a greater understanding of the timing around the first Bank of England rate cut, today's [...] highlighted the negative implications of keeping interest rates elevated for an extended period,” Scope Markets analyst Joshua Mahony said.
“Unfortunately, wages remain well above the levels that the BoE would have desired.”
Higher earnings growth than consumer price inflation, of 3.4%, “does at least ensure that the standard of living should be improving,” he added.
FTSE 100 a sea of red
Not one company on the FTSE 100 was in the green come mid-morning on Tuesday, prompting London’s blue-chip index 122 points lower to 7,843.
Anglo American (JO:AGLJ) led fallers, down 3.6%, while Pershing Square (NYSE:SQ), Scottish Mortgage Investment Trust PLC (LON:SMT), Marks and Spencer Group PLC (LON:MKS) and IMI PLC (LON:IMI) were also off by more than 3%.
Following losses on Monday, Israel’s comments overnight that there would be a response to Iran’s weekend attack knocked sentiment further.
The blow stretched to global markets, with indexes in Germany, France, Italy and Spain all shedding between 1.3% and 1.7%, while Shanghai and Hong Kong also dipped overnight.
Wage growth skews rate cut hopes on unemployment data
Raised hopes of looming interest rate cuts on news of higher than anticipated UK unemployment were clouded by data showing wage growth remained strong on Tuesday.
Headline wage growth sat at 5.6% between December and February, ONS data showed in the morning.
Excluding bonuses, wage growth came in at 6%, ahead of market expectations for a deeper decline to 5.8%.
“This wasn’t what the Monetary Policy Committee wanted to see,” Deutsche analysts point out, as members mull over the right time to cut base interest.
The data came alongside unemployment figures, showing a rate of 4.2% between December and February, above analysts’ expectations for 4%.
Though the figures suggested signs of slowing UK economic growth, analysts said the continued high wage growth could fuel inflation.
“On the back of this data, the market is now not expecting the first rate cut to come until August,” XTB’s Kathleen Brooks said.
“Stubborn wage growth has reduced the chance of a June rate cut,” she added, with markets now pricing in one cut this year and estimating high chances for a second.