Global Markets React to China Data and US Credit Downgrade

China's retail sales growth slowed to 5.1% in April, missing expectations of 5.5% growth, while industrial output rose 6.1%, beating expectations of 5.5%. Fixed-asset investment grew 4.0% in the first four months of the year, slightly lower than expected. The data indicates that consumption remains a worry for China's economy, despite stimulus measures. The urban unemployment rate eased to 5.1% in April. China's exports surged in April, driven by a jump in shipments to Southeast Asian countries, which offset a drop in U.S.-bound shipments. The recent trade truce between the U.S. and China has led to cautious growth upgrades by global investment banks.

Asia-Pacific markets declined on Monday following a mixed close on Wall Street on Friday, with investors assessing the latest economic data from China and reacting to Moody's downgrade of the U.S. credit rating. Hong Kong's Hang Seng index fell 0.73%, while mainland China's CSI 300 dropped 0.48%. Japan's Nikkei 225 and South Korea's Kospi also declined. The Reserve Bank of Australia began its two-day meeting, while China's April retail sales growth of 5.1% missed expectations, and industrial output grew 6.1% year on year. U.S. stock futures dropped after the S&P 500 posted a four-day rally.

China's economy remained largely resilient in April despite the impact of high US tariffs. Industrial output rose 6.1% year-on-year, beating estimates, while retail sales grew 5.1%, slightly below expectations. The data reflects the full force of the tariffs before a recent agreement between Washington and Beijing to pause or remove most duties. The Chinese government's Politburo meeting in April emphasized the need to stabilize employment, businesses, and markets, and to boost domestic consumption amid uncertain global trade prospects.

China's new home prices have stabilised in major cities, holding onto recent gains due to lower borrowing costs and state-led measures to support developers. Prices of new homes were unchanged in first and second-tier cities, while third-tier cities saw a 0.2% decline in April. Cities like Beijing and Shanghai recorded gains, while others like Guangzhou and Shenzhen saw declines. The central bank's rate cut and approval of loans to housing projects have helped inject confidence in the market, with experts calling for continued momentum to sustain the seven-month market recovery.

China has imposed anti-dumping duties on imports of POM copolymers, a type of engineering plastic, from the US, EU, Japan, and Taiwan, with rates ranging from 3.8% to 74.9%. The duties were announced by China's Commerce Ministry following a probe launched in May 2024. The highest rate of 74.9% was levied on US imports, while EU shipments will face a 34.5% duty. The move comes amid a backdrop of a potential easing of the US-China trade war, with the two sides agreeing to slash reciprocal tariffs in a 90-day truce.

Hong Kong manufacturers are being urged by US importers to find ways to bypass tariffs despite a 90-day pause on Sino-US tariffs. Industry veterans say they are pressing ahead with plans to diversify production locations to mitigate geopolitical risks, with some exploring alternatives in Vietnam and Thailand, as they remain cautious about the long-term impact of the trade war.

Moody's Ratings cut the United States' sovereign credit rating to Aa1 from Aaa, citing the growing burden of financing the federal government's budget deficit and debt. Despite this, U.S. stocks rose last week, with the S&P 500 surging 5.3%, the Dow Jones Industrial Average climbing 3.4%, and the Nasdaq Composite popping 7.2%, driven by technology stocks like Tesla and Nvidia. However, the credit rating downgrade could lead to higher Treasury yields, pressuring stocks. Other news includes Nvidia denying it is sending chip designs to China, U.S. President Donald Trump saying he will help broker a ceasefire between Ukraine and Russia, and former U.S. President Joe Biden being diagnosed with prostate cancer. This week, earnings from Home Depot, Target, and TJX will be closely watched for signs of consumer health.

Stock futures fell on Sunday evening after Moody's downgraded the US credit rating to Aa1 from Aaa, citing financing challenges tied to the growing budget deficit. Dow futures dropped 292 points or 0.7%, S&P 500 futures pulled back 0.7%, and Nasdaq 100 futures lost 0.8%. The downgrade comes after a winning week on Wall Street, with the Nasdaq Composite surging over 7%, the S&P 500 jumping over 5%, and the Dow rallying over 3%. Investors will monitor speeches from US central bank officials and leading indicators data on Monday.

The US lost its last triple-A credit rating due to concerns over government debt, prompting a decline in financial markets. Moody's downgraded the US credit rating, citing a bill that could add trillions to federal debt by making Trump's 2017 tax cuts permanent. US stock futures fell around 1% and Asian markets also declined, with South Korea's Kospi and Taiwan's Taiex indexes falling over 1%. The US dollar weakened against other currencies, and the 10-year Treasury bond yield rose to 4.51%. Analysts warn that the downgrade could shake the safe-haven status of Treasury bonds, leading to higher premiums for US debt, and potentially sparking global market volatility.