(17 JULY 2017)DAILY MARKET BRIEF 1:China’s stock markets slid despite solid GDP read

Chinese equities tumbled on Monday with the tech focussed Shenzhen index falling 4.28% to 1,800.54, while the Shanghai Composite was off 1.43% to 3,176.46 points. Data showed the world’s second largest economy grew 6.9%y/y in the second quarter, matching the previous quarter’s performance but beating median forecast of 6.8%. June retail sales also came in higher than expected, printing at 11%y/y versus 10.6% expected. Finally, industrial production expanded 7.6%y/y, beating forecast of 6.5%.

This morning’s sell-off in came on the back of rising concerns about the excess of leverage in the economy and questions regarding potential domino effects once deleveraging actually kicks in. In the FX market the yuan, both onshore and offshore, was trading flat lined despite a broad based strength of the greenback.

The dollar index extended gains against most of its peer, rising 0.35% against the Swedish krona and the New Zealand dollar and 0.25% against the single currency, recovering somewhat after Friday’s sell-off. Indeed, the last batch of US data left little for excess optimism. Retail sales printed in negative territory for the second month in a row, contracting 0.2%m/m (versus +0.1% expected). Excluding auto and gas, the measure shrunk 0.1%m/m versus +0.4% median forecast. The persistent weakness in US data suggests that what the Fed sees as “transitory” may have deeper roots, which would for sure dampened its rate pace outlook.

By Arnaud Masset