Marketmind: China data underwhelms, adds to risk-off mood

© Reuters. The German share price index DAX graph is pictured at the Frankfurt stock exchange after risks have climbed to multi-month highs in recent days as concerns over contagion from the collapse of Silicon Valley Bank and instability at European bank Credit Sui

A look at the day ahead in European and global markets from Ankur Banerjee

A slew of economic data from China pointed to a weak recovery, leaving investors underwhelmed and more keen than ever for additional stimulus measures from Beijing.

Markets may also be feeling a sense of deja vu. After all, we’ve been here before: A property crisis with no signs of letting up, mounting deflationary pressures and weak consumer demand were all hobbling China’s economy for much of 2023, and have spurred a steady drumbeat of demands for stimulus.

Wednesday was no different. Data showed gross domestic product grew 5.2% in October-December from a year earlier, quickening from the 4.9% pace in Q3 but missing the 5.3% growth forecast in a Reuters poll.

It was just about enough to ensure Beijing met its annual 2023 growth target of about 5% despite a shaky start to the year.

And so investors, already rattled by hawkish rhetoric from central bankers pushing back against the narrative of early rate cuts, sent Asian stocks lower to a one-month trough, while China’s blue chip stocks were loitering at their lowest in five years.

Worries over attacks in the Red Sea have brought back jitters over supply chain disruptions and geopolitical tensions, sending investors to the safe-asset dollar, which is at a one-month high.

The gloomy mood is set to continue into Europe, where futures are indicating a sharply lower open. Europe’s luxury stocks in particular will be the ones to watch after the China data.

A data-packed Wednesday is in store, with inflation reports from Britain and the euro zone later in the day potentially influencing how markets think the Bank of England and the European Central Bank will proceed with monetary policy.

ECB policymakers this week have tried to beat down market expectations of rate cuts, maintaining a cloud of uncertainty over the timing of the moves. Traders, though, are still pricing in 150 basis points of cuts from the ECB this year.

Key developments that could influence markets on Wednesday:

Economic events: UK CPI and PPI data; euro zone inflation data

(This story has been refiled to correct a related story link, in paragraph 1)

(By Ankur Banerjee in Singapore; Editing by Edmund Klamann)

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