November 14, 2019 / 8:50 AM / a month ago

MORNING BID EUROPE-China's health check punctures optimism

LONDON, Nov 13 (Reuters) - China’s alarming economic data for October are sobering for world markets, which had become grown comfortable in recent weeks about avoiding a global downturn next year. With no signs that phase one of a trade agreement between Washington and Beijing has been struck, a slowdown in Chinese factory output growth last month – alongside poor retail and investment readings – shows the damage already inflicted by the year-long tariff war. A 4.7% year-on-year increase in industrial output was 0.7 percentage points below forecast. A similar miss by retail sales growth saw it match April’s 16-year low of 7.2%. Fixed-asset investment growth was the weakest on record for the month.

Some think the weakness will only push Chinese officials to make more concessions to reach an agreement with Washington, but there were few indications of that on Thursday. U.S. President Donald Trump earlier this week declined to give any new information about the talks and insisted not only that tariff rollbacks had not been agreed but that he would raise tariffs “very significantly” if a deal did not emerge. But China’s commerce ministry said it saw cancelling tariffs as an important condition for reaching any phase-one agreement and stressed “in-depth” talks were progressing. Surprisingly weak Japanese gross domestic product numbers for the third quarter showed it’s not just China and the United States that are feeling the heat from the trade war. Japan’s economy grew just an annualised 0.2% during the quarter, below the 0.8% forecast and the 1.8% seen in the dodged a recession in the third quarter, eking out a 0.1% advance. Full euro zone GDP numbers are out later in the day.

The recent rally in global stocks appears to have stalled. Wall Street’s S&P 500 was flat on Wednesday, below the record highs of previous sessions. Shanghai was similarly limited. . Tokyo’s Nikkei lost 0.8%. Protest-hit Hong Kong, already in recession, saw its Hang index lose another 1%. Bond yields eased back again, with 10-year Treasury yields as low as 1.85% on Thursday. And that was despite upbeat congressional testimony by Federal Reserve Chairman Jerome Powell on Wednesday. European yields fell early today, with France’s 10-year returning to negative territory after a week in the black. Euro/dollar was lower but clinging to $1.10.

Elsewhere, Turkey’s lira weakened 0.5% after Trump pressured his Turkish counterpart President Tayip Erdogan to walk away from the purchase of a Russian defence missile system and as industrial production data came in weaker than expected. South Africa’s rand fell 0.3%. State-owned South African Airways cancelled nearly all flights amid a strike over wage increases.

In European corporate news, Thursday is the last busy day of the third-quarter earnings season. Henkel sales fell and Merck raised its sales guidance. There were reports of a potential deal for Qiagen, British luxury brand Burberry saw sales drop in Hong Kong and RWE raised its 2019 outlook. France’s state-controlled utility EDF cut its nuclear power generation target in France. Zurich Insurance set new targets. BHP named Mike Henry, its head of Australian operations, as chief executive. Germany’s K+S cut its full-year core earnings forecast. * Europe corp events: Merck, NN Group, K&S, KBC, RWE, Henkel, Bouygues, Raiffeisen, EdF, Burberry, National Grid, 3i, Great Portland Estates , Snam, Bovis trading, Asda trading

* France Q3 Jobless, final Oct inflation

* EZ, Germany, Netherlands, Poland Q3 GDP

* Spain Oct inflation

* Turkey industrial production

* OPEC monthly oil market report

* European Central Bank Vice President de Guindos speaks in London; ECB supervisor Hakkarainen speaks in Frankfurt

* German Chancellor Merkel speaks in Berlin on global responsibility

* Balkans summit in Athens

* UK Oct retail sales; UK sells 2049 gilts

* Sweden Oct jobless

* Israel Oct inflation

* Mexico, Egypt, Philippines central banks’ policy decisions

* US Q3 earnings: WalMart, NVIDIA, Viacom,

* US PPI inflation, weekly jobless claims

* St Louis Fed chief Bullard speaks in Louisville; Chicago Fed chief Evans speaks in Philadelphia (by Mike Dolan, @reutersMikeD)

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