17 July 2023
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Chinese GDP growth disappoints in Q2

By Daniel Richards

Chinese GDP data released this morning points to a slowing in economic activity, with second quarter GDP growing just 0.8% on a QoQ basis, down from 2.2% QoQ in the first three months of 2023. On a year-on-year basis Q2 growth was 6.3%, which was higher than the 4.5% seen Q1, but this was driven by base effects with large cities such as Shanghai having been in extended lockdowns in 2022. Recent economic data out of China have pointed to declines in exports, weak retail sales and continued troubles in the Chinese property market, which are all factors likely to have weighed on activity in the second quarter.  

An agreement to settle trade between the UAE and India in the two countries’ local currencies was signed on Saturday, as part of a state visit by Indian Prime Minister Narendra Modi. The agreements should reduce transaction costs by eliminating the need to first covert local currencies into US dollars. A further memorandum of understanding was signed to link the two nations’ payments and messaging systems, a move which should make cross-border payments easier.

The July reading of the US University of Michigan sentiment survey rose to its highest level since September 2021, reaching a value of 72.6 from 64.4 in June, on the back of slowing inflation and a still-strong labour market. There were increases in both the current conditions and the expectations components on the month, but the aggregate index remains well below pre-pandemic levels. The survey also pointed to slightly higher inflation expectations, with 1-year ahead inflation expectations rising to 3.4% from 3.3% and 5-10 year ahead inflation expectations up to 3.1% from 3%.

Today’s Economic Data and Events

  • 16:30 US Empire manufacturing survey, July. Forecast: -3.6

Fixed Income

  • US treasury yields rose on Friday, after having seen declines earlier in the week. This was on the back of both better-than-expected University of Michigan sentiment survey results and comments from Fed official, Christopher Waller, that two further rate rises may be required. Yields on the 2yr UST rose by 14bps to 4.766% while 10yr yields rose 7bps to 3.832%.
  • There were also broad-based rises in European yields on Friday. 2yr UK Gilt yields rose 7bps to 5.166% and the 10yr yield ticked up by 2bps to reach 4.436%.
  • The 2yr German bund yield increased 5bps to 3.185% and the 10yr bund yield rose by 4bp to 2.507%.


  • The dollar strengthened marginally against a basket of peers on Friday, but nonetheless ended the week more than 2% weaker.
  • Sterling fell -0.33% on Friday, to reach 1.3093. EURUSD was broadly flat by the end of trading at 1.1228, while the dollar gained against JPY, rising 0.54% to 138.8.
  • Commodity currencies declined against the dollar on Friday, with USDCAD rising 0.8% to 1.3216. AUDUSD fell -0.74% to reach 0.6838, while NZDUSD declined 0.36% to 0.637.


  • Global equity markets rallied last week in line with other asset classes, as the softer CPI print in the US raised hopes that the Fed’s hiking cycle would soon be over. Gains were largely positive around the world, although in Asia, Japanese markets stood out as global underperformers with the Nikkei closing flat on the week and the Topix losing 0.7% w/w. Chinese markets were far more positive as the Hang Seng added 5.6% and the Shanghai Composite 1.3%.
  • Despite some retrenchment on Friday there were similarly strong gains in the US and Europe. The composite European STOXX 600 index ended Friday up 2.9%. Of the major individual country indices, France’s CAC was strongest as it ended the week 3.7% higher. In the US, the NASDAQ was the biggest gainer as it added 3.3% w/w. The Dow Jones gained 2.3% and the S&P 500 2.4%.
  • Locally, the ADX closed up 0.5% w/w and the DFM 1.2%. Saudi Arabia’s Tadawul ended the week 1.0% higher.


  • Oil markets rode the risk-on rally last week, with robust gains in both benchmarks over the period, although seeming profit taking from an 11-week high on Friday saw prices drop lower than they had been earlier in the week.
  • Brent futures closed the week at USD 79.9/b, up 1.8% w/w, while WTI added 2.1% over the period to end Friday at USD 75.4/b.

Written By

Daniel Richards Senior Economist

Jeanne Walters Senior Economist

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