AFP

Oil prices fell Monday on the prospects of a return of Iranian oil to the market and data showing China’s economic recovery stuttering under Covid-19 restrictions.

Stock markets were broadly steady and the dollar traded mixed as investors digested the latest developments, including the surprise move by China’s central bank Monday to slash interest rates as a raft of data showed industrial production and retail sales growth for July came in lower than expected. 

“The risk of stagflation in the world economy is rising, and the foundation for domestic economic recovery is not yet solid,” China’s National Bureau of Statistics warned.

Stagflation refers to long-running high inflation combined with rising unemployment and weak growth.

Beijing’s rigid adherence to a zero-Covid strategy has held back economic recovery as snap lockdowns and long quarantines batter business activity and a recovery in consumption.

Wall Street stocks initially fell following the Chinese data and a gloomy reading from the New York Federal Reserve Bank on regional manufacturing activity. But stocks had turned around by midday.

“The risk of a global recession is pretty high at the moment,” said FHN Financial’s Chris Low, adding that a silver lining of the weakening outlook is the expectation that the Federal Reserve could pivot more quickly and slow its efforts to raise interest rates to quell red-hot prices.

“The Fed will stop sooner if inflation goes away and it’s more likely to go away sooner with the global economy slowing,” Low said.

But the weakened Chinese economy weighed on oil prices, as did speculation that a revived nuclear deal could add Iranian crude to global markets.

US oil futures dropped nearly three percent to finish below $90 a barrel.

Iran’s foreign minister said Tehran would deliver its “final” proposal later Monday on talks to revive its 2015 nuclear accord with world powers, after Washington had accepted key demands.

A deal would mean that Iran’s crude output of 2.5 million barrels per day would no longer be subject to international sanctions, which would help relieve supply constraints that have been pushing up prices.

“Iran would flood the market,” said analyst Aditya Saraswat at energy research firm Rystad, who added the country could ramp up production by another million barrels per day. 

– Key figures at around 2030 GMT –

Brent North Sea crude: DOWN 3.1 percent at $95.10 per barrel

West Texas Intermediate: DOWN 2.9 percent at $89.41 per barrel

New York – Dow: UP 0.5 percent at 33,912.44 (close)

New York – S&P 500: UP 0.4 percent at 4,297.14 (close)

New York – Nasdaq: UP 0.6 percent at 13,128.05 (close)

London – FTSE 100: UP 0.1 percent at 7,509.15 (close)

Frankfurt – DAX: UP 0.2 percent at 13,816.61 (close)

Paris – CAC 40: UP 0.3 percent at 6,569.95 (close)

EURO STOXX 50: UP 0.3 percent at 3,789.62 (close) 

Tokyo – Nikkei 225: UP 1.1 percent at 28,871.78 (close)

Hong Kong – Hang Seng Index: DOWN 0.7 percent at 20,040.86 (close)

Shanghai – Composite: FLAT at 3,276.09 (close)

Euro/dollar: DOWN at $1.0166 from $1.0259 Friday

Pound/dollar: DOWN at $1.2055 from $1.2138 

Euro/pound: DOWN at 84.29 pence from 84.53 pence

Dollar/yen: DOWN at 133.33 yen from 133.42 yen

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China’s central bank slashed key interest rates Monday in a bid to kick-start the country’s stuttering economic recovery as data showed factory output and retail sales for July came in weaker than analysts’ expectations.

The world’s second-biggest economy saw a bounce in business activity as some coronavirus restrictions eased in June, but the boost is fading and Beijing remains welded to a zero-Covid policy of snap lockdowns and long quarantines, which has battered sentiment.

For July, China’s industrial production rose 3.8 percent on-year, down from a 3.9 percent jump in June, the National Bureau of Statistics (NBS) said Monday.

Retail sales grew at a slower-than-expected 2.7 percent from a year ago, down from 3.1 percent in June, while the urban unemployment rate fell to 5.4 percent, the NBS said. 

“The risk of stagflation in the world economy is rising, and the foundation for domestic economic recovery is not yet solid,” the NBS warned in a statement.

“We think the weakness in retail sales was due to renewed virus disruptions and the blow to consumer sentiment from the problems in the property market,” said Julian Evans-Pritchard, senior China economist at Capital Economics said in a note on Monday.

The virus remains a risk, with zero-Covid meaning that “targeted lockdowns will remain commonplace, depressing consumer activity and spending,” he said, while slow progress in expanding vaccination among the elderly means this policy will not be abandoned soon.

“July’s economic data is very alarming,” Raymond Yeung, Greater China economist at Australia & New Zealand Banking Group Ltd, told Bloomberg TV.

China’s property sector has been teetering, with frustrated homebuyers across dozens of cities taking part in mortgage boycotts as cash-strapped developers struggle to complete projects.

The country’s economic growth was just 0.4 percent on-year in the second quarter — its slowest rate since the initial Covid outbreak.

And the People’s Bank of China Monday cut its policy rates, bringing its seven-day reverse repurchase rate — a key rate at which the central bank provides short-term liquidity to banks — to a new low.

It also cut its one-year medium-term lending facility, surprising forecasters, although some analysts believe this may not be enough to revive credit growth.

Credit growth in China edged down in July, with analysts at Nomura saying in a report that it did not bode well for the second half of the year.

“The combination of zero-Covid strategy and the deteriorating property sector continues to drag down the economy, even as export growth remains elevated and the automobile sector gets a boost from the purchase tax cut,” they said.

Japan’s economy expanded in the three months to June, official data showed Monday, after the government lifted Covid-19 curbs on businesses.

The world’s third-largest economy grew 0.5 percent quarter-on-quarter due to stronger consumption and capital investment, but the rise was below market expectations of 0.7 percent.

While the country never imposed strict stay-at-home orders during the pandemic, the government in March removed virus restrictions primarily targeting business opening hours.

Inbound tourism remains limited to group tours, however, and the economy is facing headwinds — from the energy price crisis to fears of a global recession fuelled by biting inflation.

From April to June, private consumption grew 1.1 percent compared with the 0.3 percent registered in the January-March quarter, according to the data released by the Cabinet Office.

Capital spending expanded 1.4 percent, compared with a 0.3 percent contraction in the previous quarter.

“After the government lifted a quasi-state of emergency in late March, consumption of services showed a relatively strong rebound, while capital investment returned to growth,” BNP Paribas said in a note issued before the GDP data.

Mitsubishi UFJ Research and Consulting also noted that “as the spread of the Omicron variant subsided, private consumption steadily increased, especially in-person services, and lifted the overall economy.”

The data is preliminary, and GDP figures are often revised in later months.

In May, the Cabinet Office reported that the economy shrank slightly in the first quarter of 2022, but on Monday, this was revised to zero percent. That means no change was observed following a modest rebound in the final quarter of 2021.

Consumer prices are rising in Japan, although not at the blistering rate seen in the United States and many other major economies.

The Bank of Japan sees the price rises as temporary and is sticking to its long-held monetary easing policies in a bid to achieve stable growth, a decision that has caused the yen to plummet to 24-year lows against the dollar.

Supply chain disruption caused by Covid-19 lockdowns in China and sky-high energy costs due to the war in Ukraine have also created a challenging environment for growth.

“We now think the economy’s recovery is less impressive than we had expected at the end of last year, with an unexpected resurgence of Covid-19 infections at the beginning of this year and now,” Masamichi Adachi and Go Kurihara of UBS said in a statement ahead of the data release.

Japan is currently experiencing a record-breaking wave of Covid-19 infections. It has logged around 35,000 deaths from the disease overall, far lower than many other countries.

Huawei’s revenue dipped by just under six percent in the first half of 2022, company figures showed Friday, as the Covid-19 pandemic and US-China trade rivalry hit sales.

The Chinese telecom giant brought in 301.6 billion yuan ($44.8 billion), according to the data, a slip of 5.9 percent on the previous year.

“While our device business was heavily impacted, our ICT infrastructure business maintained steady growth,” Ken Hu, Huawei’s rotating chairman, said in a statement.

Weak global demand due to the pandemic, as well as a 2019 US blacklisting that snarled its supply chains, have hurt the company’s device business, which sells smartphones and laptops, a Huawei spokeswoman told AFP.

In the second quarter, Huawei lost its position among the top five global smartphone sellers, according to industry data provider Canalys.

A supplier of networking equipment, phones, and other state-of-the-art gear, Huawei has struggled in the wake of a crackdown by the administration of former US president Donald Trump, which cited cybersecurity and espionage concerns.

The Biden administration has added to the pressure on the firm with the recently passed US Chip Act, which could threaten its access to global semiconductor supply chains.

Profit growth for the first half slowed to five percent, down from 9.8 percent over the same period last year, Friday’s figures showed.

The company’s smartphone sales have also slowed after the United States barred it from using Google’s Android services, continuing to decline in the first half.

The firm has launched its own Harmony operating system, which is now being used on 300 million Huawei devices mostly in China, but it is yet to be rolled out internationally.

The company’s global 5G infrastructure expansion plans have also faced a backlash in major economies including the UK, Australia and India over security concerns.

– New business lines – 

In the wake of US sanctions, the tech giant has tried to shore up other parts of its business.

It has refocused on the Chinese market and diversified to enterprise and cloud computing, designing smart car components and energy efficiency systems.

“We will harness trends in digitalization and decarbonization to keep creating value for our customers and partners, and secure quality development,” Hu said.

Huawei is not publicly listed and its accounts are not subject to the same audits as companies traded on the stock market.