The Chinese Dragon Remains in Slumber

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Blinken unexpectedly meets Xi

U.S. Secretary of State Antony Blinken concluded his visit to China with an unexpected meeting with the country’s president, Xi Jinping. The unconfirmed meeting suggests a small step towards rebuilding strained U.S.-China relations. Blinken’s meeting could open the door for U.S. President Joe Biden to meet with Xi in November.

Markets disappointed

U.S. markets were closed on Monday to observe Juneteenth, the day commemorating the end of slavery in America. However, stock futures experienced a slight dip. Asia-Pacific stocks struggled for direction on Tuesday. China’s Shanghai Composite fell by 0.18% and Hong Kong’s Hang Seng Index dropped by 1.53% due to the Chinese central bank’s shallower-than-expected interest rate cuts. More on this below.

Merely superficial adjustments

The People’s Bank of China lowered its one-year and five-year loan prime rates by 10 basis points each. The one-year rate is now 3.55%, and the five-year rate is 4.2%. Economists believe that these cuts are too insignificant to have a substantial impact on monetary conditions. Nevertheless, they signal to the markets that Chinese officials are prepared to support economic growth.

Alibaba’s succession plan

Eddie Wu, one of Alibaba’s co-founders and current chairman of Taobao and Tmall Group, will replace Daniel Zhang as the chief executive of Alibaba. Joe Tsai, the current executive vice chairman, will assume the role of chairman. These appointments will take effect on September 10. Zhang will remain as chairman and CEO of Alibaba’s Cloud Intelligence Group.

[PRO] Connecting the dots

A “golden cross” occurs when a stock’s 50-day moving average surpasses its 200-day trend line. Analysts view this event as a bullish indicator that could lead to further rallies. CNBC Pro has analyzed FactSet data and identified six stocks on the verge of forming a golden cross.

Since U.S markets were closed yesterday, let’s take a quick look at the world’s second-largest economy: China. Spoiler alert – it’s not looking good.

In January, when China abruptly abandoned its “zero-Covid” policy, analysts held mixed feelings of concern and excitement. On one hand, the sudden revival of a massive economic powerhouse could potentially intensify inflation. Analysts braced themselves for higher commodity and oil prices. On the other hand, many viewed China as a potential driver of a global economy that had lost its way. To quote Standard Chartered Chairman José Viñals, “The Chinese economy is going to be on fire, and that’s going to be very, very important for the rest of the world.”

Now, as we approach the midway point of the year, let’s see how China is measuring up against those expectations. In short – it appears that everyone has misjudged China. Instead of fueling inflation, China is grappling with the possibility of deflation within its domestic economy. The country’s consumer price index has only risen by 0.2% compared to the previous year, while its producer price index has plummeted by 4.6%. Recent economic data has been so disappointing that Wall Street banks are revising their projections for China’s economic growth this year, although optimistically, their forecasts still surpass China’s own target of “around 5%.” Moreover, oil prices continue to decline despite Saudi Arabia’s surprise production cuts, and iron ore prices are also struggling due to a projected decrease in China’s demand for steel.

To put it simply, China’s economy is not performing well. It’s true that there’s a possibility of a turnaround – the country’s central bank has started implementing rate cuts, and analysts anticipate fiscal stimulus. However, for now, the Chinese dragon remains dormant, and it’s starting to feel a little chilly.