Global stock markets edged higher on Friday after the Chinese
government reported that growth eased to its slowest pace in three
years in the second quarter, leading investors to bet that
policymakers would expand stimulus measures aimed at reviving
growth of the world's second-largest economy.
China's National Bureau of Statistics reported that
second-quarter growth slowed to an annualized pace of 7.6
percent-less than the first-quarter's 8.1 percent expansion and
right in the 7.5-7.7 percent range it had been expecting, according
to a Bloomberg News report. In all, the report was something of a
relief, as some had been expecting a lower number.
Investments focused on stocks and commodities rose on the news,
reflecting expectations that lower interest rates and ramped-up
government spending would be a shot in the arm for the global
economy. The Chinese government has already been moving to reverse
the trend-most recently last week by cutting official borrowing
rates, and also by unveiling a slew of new spending programs.
Gold, frequently the beneficiary of easy-money central banking
policies, was one of the most conspicuous movers early Friday, with
spot prices jumping more than $20 from Thursday's closing futures
price to over $1,583 a troy ounce, according to Kitco.
The SPDR Gold Shares (NYSEArca:GLD), the $63.52 billion
bullion ETF, was up 1.4 percent to $154.64 a share.
The flip side of easy-money policies is that they weaken
currencies and the fact that the WisdomTree Dreyfus Chinese Yuan
Fund (NYSEArca:CYB) was edging lower in the wake of the data was no
But the iShares FTSE China 25 Index Fund (NYSEArca:FXI), a
bellwether for Chinese stocks, was up 1.25 percent at $32.49,
according to data on Google Finance.
FXI's percentage move was roughly in line with that of the SPDR
Dow Jones Industrial Average Trust (NYSEArca:DIA) and the iShares
S&P 500 Index Fund (NYSEArca:IVV).
Nervousness Shines Through Suspicion
While some analysts quibble about the accuracy of data from
China's government and wonder if the pace of growth isn't even
weaker, everyone agrees that the prospect of a slowing Chinese
economy is bad news.
A slowing expansion there threatens to further derail a global
economy rendered vulnerable by Europe's debt crisis, which has left
much of the region in recession.
In fact, there's something of a negative feedback loop that's
probably at play by now, with Europe's weakness contributing to
slowing growth in China and the U.S. and, now, China's clearly
slowing growth contributing further to Europe's malaise and to
economic head winds in the U.S.
The point is that the Chinese economy has been growing at an
annualized pace of 10 percent since 2000, as the Wall Street
Journal reported earlier this week, and the global economy in
general has come to depend on that Chinese growth.
At about 6 a.m. Eastern time, Japan's Nikkei was up 0.05
percent; South Korea's KOSPI jumped 1.54 percent; the Shanghai
Composite of mainland China stocks rose 0.02 percent; the Hang Seng
in Hong Kong climbed 0.35 percent; and the S&P/ASX 200 in
Australia increased 0.35 percent.
The Stoxx Europe 600 Index was meanwhile up about 0.8 percent,
and U.S. stock futures were pointing to a higher open, with both
markets also reacting to the report on China's second-quarter
Other Affected ETFs
One ETF that got an outsized pop from the China news was the
iShares MSCI South Korea Index Fund (NYSEArca:EWY). It's almost 2
percent higher on the day, though is down by about 2 percent over
the past five days-an indication that economies closer to China are
likely to feel any Chinese slowdown in a much more immediate
Also, the broad futures-based commodities ETF, the United States
Commodity Index Fund (NYSEArca:USCI), pushed about 1 percent higher
to $59.74 a share- a clear sign that investors reckon that
more aggressive monetary easing and fiscal stimulus plans by China
will affect the entire world of raw materials.
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