Global Markets Lower as China 3Q GDP Growth Slows

By Joyce Yu

Philadelphia, PA–The optimism that fueled U.S. stocks to yet another record was missing on Thursday as markets in Asia and Europe retreated. Wall Street looks to open lower this morning.

Official data showed China, the world’s second largest economy, grew 6.8% in the third quarter compared with the same period in 2016. That is slightly lower than the 6.9% growth rate it posted in the first two quarters of 2017, but well above China’s target of 6.5% for annual economic growth this year.

The slowdown had been expected as the government reins in the heated property market and cracks down on riskier lending. Other data, however, showed that China’s industrial output rose a stronger-than-expected 6.6 percent in September, while retail sales also outperformed. Property sales fell though for the first time in over two years.

“The GDP reading could weigh negatively on both mainland stocks and currency markets as traders may position for further weakness into year-end, suspecting financial curbs will continue to have a negative impact on growth in China,” said Stephen Innes, head of Asia-Pacific trading at OANDA in Singapore. Hong Kong’s Hang Seng index lost 1.9 per cent — its biggest fall in two months.

Despite the solid headline figure, economists warn that the economy this year benefited from the lagging impact of significant monetary and fiscal stimulus in 2016. That stimulus boosted short-term growth but added to long-term risks from reliance on debt-fuelled investment, according to the Financial Times.

“The latest growth data paint a reassuring picture of an economy that, on the surface, is firing well on all cylinders. Beneath the surface, potential financial market stresses continue to build up but remain at bay for now,” the Financial Times quoted Eswar Prasad, economics professor at Cornell University and former China head for the International Monetary Fund.

The Dow Jones industrial average closed above 23,000 for the first time on Wednesday, gaining 0.7%. The S&P 500 added 0.1% and the Nasdaq was flat. European markets opened in negative territory this morning after disappointing results from major European corporations, notably from Anglo-Dutch consumer goods titan Unilever, French advertising group Publicis and Germany’s Kion.

“European markets have started the day firmly on the back foot as a raft of company report earnings missed expectations, while investors await the next steps with respect to the constitutional crisis in Spain and today’s EU summit in Brussels,” said Michael Hewson, chief market analyst at CMC Markets U.K. “We look set for a lower U.S. open today. All eyes are likely to be on today’s meeting with current Fed chief Janet Yellen and U.S. President Trump with some Republicans calling for her to be allowed to leave.”

The central government in Madrid said Thursday that it will move to impose direct rule on the wealthy region of Catalonia, which has been considering whether to declare independence. Catalan President Carles Puigdemont says he will formally break with Spain if the central government refuses to engage in talks.

Separately, investors are expecting more earning reports from companies such as Blackstone, Verizon and Paypal. US jobless claims will also release today.