15 July 2022
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China GDP growth slows in Q2

By Daniel Richards

  • China’s real GDP growth print came in far below expectations in the second quarter as it showed an expansion of just 0.4% y/y, compared with consensus 1.2% and down from 4.8% in Q1. This makes H1 growth 2.5%. Industrial production was up 3.9% y/y in Q2, up from 0.7% in Q1 and just shy of consensus 4.0%, underlining that it is consumption that has really taken a hit over the second quarter as the country endured waves of lockdowns once again.  
  • US initial jobless claims came in at 244,000 in the week to July 9, up from 235,000 the previous week – consensus had expected a similar level again. This was the highest level since November in an indication that the buoyant labour market is now starting to show some signs of cooling as inflation and monetary tightening bites.
  • Turkey industrial production expanded 0.5% m/m in May, exceeding expectations of a -0.3% contraction. On an annual basis, industrial production was 9.1% higher, a slowdown from the 10.8% y/y growth recorded in April. Growth was driven by manufacturing which was up 10.7% y/y, while mining & quarrying declined -5.7%.
  • Pressures on Italy’s economy are mounting as Prime Minister Mario Draghi tried to resign yesterday as his government collapsed, although he could yet stay on as caretaker at the president’s request until new elections are held. The risk of a debt crisis as rates start to rise, exacerbated by political turmoil, is pushing Italian bond yields lower.

Today’s Economic Data and Events

  • 18:00 US University of Michigan consumer sentiment, July. Forecast: 50.0
  • 16:30 US retail sales, June, % m/m. Forecast: 0.9%
  • 17:15 US industrial production, June, % m/m. Forecast: 0.1%

Fixed Income

  • US Treasuries showed more choppy trading as the market anticipates whether the FOMC will make use of a 100bps hike at their July meeting or stick with the telegraphed 75bps moved. Yields on the 2yr UST peaked at more than 3.25% at one point during the day before Treasuries rebounded and the 2yr yield closed down 2bps at 3.1383%. In the 10yr UST, yields traded around a 10bps move from 3.02% on the top end to about 2.92% on the low, eventually settling the day up 3bps at 2.9651%.
  • Christopher Waller, a Fed governor, pushed back against the idea of a 100bps hike saying that he supported 75bps following the release of the June CPI. James Bullard, president of the St Louis Fed, also endorsed a 75bps hike for the July meeting.
  • European bond markets closed lower as the Eurozone enters an even more uncertain political environment with the collapse of the government in Italy. Yields on 10yr Italian bonds rose by 11bps to 3.236% overnight with 10yr bund yield added 3bps to 1.170%. As the UK Conservative party leadership race continues, yields on 10yr gilt yields added 4bps to 2.098%.
  • Emerging market bonds endured a considerable risk-off move with yields on South African 10yr bonds up by 26bps at 11.469%. Indian 10yr yields managed to move lower, down by 5bps at 7.338%.


  • The dollar extended its relentless rise with sharp moves against nearly all peer currencies. The broad DXY index settled at 108.544, far surpassing levels hit during the height of the Covid-19 pandemic in 2020. EURUSD fell to 0.995 at one point before managing to recover and settle down 0.4% at 1.0018. USDJPY spiked by more than 1% to 138.96, within sight of the 140 level while GBPUSD fell another 0.55% to 1.1824.
  • In commodity currencies, CAD led the way weaker, more than unwinding its gains prompted by the 100bps hike from the Bank of Canada earlier in the week. USDCAD soared by more than 1% to 1.3118. AUDUSD fell by 0.15% to 0.6750 while NZDUSD was relatively stable at 0.6129.


  • While the NASDAQ managed to close flat yesterday (up modestly), the S&P 500 (-0.3%) and the Dow Jones (0.5%) both ended the day lower once again, with the high inflation print and expectations of further tightening continuing to weigh on stocks. Earnings season will now start to provide greater direction over the coming week.
  • Locally, the ADX gained 0.9% and the DFM 1.3%. The Tadawul closed -1.1% lower.


  • Oil prices fell another 0.5% to USD 99.10/b in the Brent market and to USD 95.78/b in WTI. The macro recession narrative remains the paramount theme for oil markets at the moment with expectations that slowdown or recession would ravage demand. But the effects of a high interest rate induced recession will be very different to the lockdown responses to the Covid-19 pandemic and demand is not likely to be as badly impacted.

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Written By

Daniel Richards Senior Economist

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