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China’s Weak Industrial Production, Retail Sales Highlight Need for Easing Monetary Conditions

James Hyerczyk

The major Asia Pacific stock indexes are trading higher on Monday with Hong Kong’s Hang Seng index the lone loser. The markets have clawed back earlier losses caused by a spike in oil prices following drone attacks over the weekend that caused damage to major crude production facilities in Saudi Arabia.

At 06:27 GMT, Japan’s Nikkei 225 Index is at 21988.29, up 228.68 or +1.05%. Hong Kong’s Hang Seng Index is at 27074.05, down 278.64 or -1.02% and South Korea’s KOSPI Index is at 2058.59, up 9.39 or +0.46%.

China’s Shanghai Index is at 3029.55, down 1.69% and Australia’s S&P/ASX 200 is at 6670.30, up 1.10 or +0.02%.

China Economic News

The cut in the reserve requirement ratio for banks that the People’s Bank of China (PBOC) announced in early September went into effect on Monday. The move called for mostly a 50 basis point rate cut but it could reduce that ration to 100 basis points for some qualified banks.

The decision is expected to free up about 800 billion yuan ($113 billion) in liquidity into the economy.

In other news, China’s industrial production growth saw its slowest pace in 17 and a half years in August, rising just 4.4% year-on-year. That was below analyst estimates of a 5.2% year-on-year increase. Industrial output growth in the country saw an expected drop to a more than 17-year low in July.

Chinese retail sales and investment gauges also worsened, reinforcing views that China is likely to cut some of its key interest rates this week for the first time in over three years to prevent a sharper slump in activity.

“After worsening across the board in July, growth in industrial production, capital spending and retail sales fell even further last month,” said Martin Lynge Rasmussen, China Economist at Capital Economics in Singapore.

“With a strong rebound unlikely any time soon, we anticipate that policymakers will ease monetary conditions further in the coming months.”

Global Energy Sector, Shares Rise

In the wake of the drone attack on Saudi Arabia that shutdown several key oil production plants over the weekend, while reducing oil output for the country by 5.7 million barrels per day, international benchmark Brent crude oil jumped nearly 10% and U.S. West Texas Intermediate crude oil rose nearly 9%.

This drove stock market investors and speculators into shares of oil companies in the Asia Pacific region.

On Monday, Australia’s Woodside Petroleum rose 4.59% and Santos jumped 4.6%. In South Korea, S-Oil shares gained 2.81%. Finally, Hong-Kong-listed shares of Chinese oil titan Petrochina also soared 5.45% while CNOOC leaped 6.22%.

This article was originally posted on FX Empire