Will data hit investor hopes of a Chinese recovery?

Will Chinese trade data continue to disappoint?

Investors watching China’s sputtering post-Covid 19 reopening do not have high hopes for trade data released on Wednesday, which is expected to show declining import and export volumes last month.

Imports are forecast to fall 7.9 per cent year-on-year in May, matching April’s surprisingly steep decline, according to a Reuters poll. Exports are expected to contract 0.6 per cent compared with a year earlier, having surged 8.5 per cent from a low base in the previous month.

Following weak consumer spending and industrial output figures, underwhelming trade data would only add to investor concerns that a widely expected explosion of pent-up Chinese demand may have been overhyped. 

At the start of the year traders were piling into Chinese stocks and betting on rising prices for commodities in anticipation of a US-style pandemic recovery.

In a sign of how investor sentiment has soured, the Hang Seng China Enterprises index this week briefly dipped 20 per cent below its January peak to fall into bear market territory, while prices for copper and iron ore have dropped steadily since the start of the year. 

China’s recovery “is still largely on track”, according to Goldman Sachs’ analysts, “but some persistent weaknesses in the economy — the property sector, youth employment and consumer confidence — may require more targeted policy support to counteract”. George Steer

Will consumer confidence in the eurozone hold up?

The eurozone consumer has been hit by soaring prices and sluggish pay rises for more than a year, yet next Tuesday’s publication of sales data is expected to show a slight rebound in April compared with the previous month.

Having fallen 0.4 per cent in the first quarter, eurozone retail sales are expected to return to mild growth with a month-on-month rise of 0.1 per cent, according to a Reuters poll of economists. 

German retail sales rose 0.8 per cent in April, boosted by a rise in food sales, according to recent data. However, Oxford Economics economist Mateusz Urban said there was still “little hope for a more meaningful rebound before real wages start to rebound later this year”.

Consumer confidence in Europe has recovered from an all-time low during last year’s energy crisis, but it remains far below the long-term average despite inching up further in May, according to the EU’s latest survey.

Sentiment among European retailers continued to turn more gloomy, the survey found, as managers’ assessments of current and past business conditions deteriorated sharply and indicated a growing concern about excessive stock levels. Martin Arnold

Will US mega-techs hit a new high?

Enthusiasm about generative artificial intelligence has pushed US tech stocks to within sight of their 2021 all-time high. 

The S&P 500 Information Technology sub-index, made up of 60-plus of the largest US-listed tech companies, has risen more than one-third this year and left it just over 5 per cent short of its December 2021 peak. 

The gains have been led by its largest constituents — Apple, Microsoft and most recently Nvidia, which briefly last month joined the $1tn club on expectations that recent sharp jumps in its sales forecasts are proof of its key role in powering the rapidly evolving AI universe. Year to date the chipmaker has gained more than 170 per cent. 

A push to fresh records for the S&P’s tech index would cheer the enthusiasts who believe this is the beginning of a multiyear bull run for AI-linked companies. It would also increase the worry among active fund managers that their returns are being dictated by bets on a narrow range of already-pricey big names. 

The only other S&P 500 sub-indices to have recorded gains this year are also dominated by megacap tech groups with AI links. Amazon, which generates the bulk of its profits from cloud computing, constitutes about a third of the consumer discretionary sector, while Google parent Alphabet and Facebook parent Meta together make up more than half the communication services sector. Jennifer Hughes