Fubon Bank’s Poon Stays Conservative Ahead of GDP Data

 

By Emily Lai

Oil prices are again below USD$ 50 level and gold is extending losses to a five-year-low. Vicks Poon, First Vice President and Head of Investment Advisory at Fubon Bank (Hong Kong) tells BENCHMARK that the drop signals a wider concern over China’s economy and global deflationary pressure, thus, GDP data this week from UK and US will be in the spotlight.

The Caixin China Manufacturing PMI surprisingly dropped to a 15-month-low in July and other economic data is not catching up. “Foreign investors are now questioning if the 7% GDP in Q2 is the real picture,” he says. “They are worried of the contagion effect and the impact on the global economy, if that is not the case.”

Being the third largest importer in the world, the slowing down of the Chinese economy would bring along global deflationary pressure and this might affect the Fed’s decision to bring along the rate normalization process. “The IMF and the World Bank have already suggested the US to postpone the rate hike, and that is actually the right thing to do.” says Poon. “The drop in commodity prices and the rise in the US dollar will bring along further deflationary pressure. The Fed is putting too much focus on the labor market and overall economic data has not been supportive of a rate hike. The Fed might have to stop, or even lower the rates again, early next year even if they start raising it this year.”

The FOMC will hold a meeting this week, with US Q2 GDP out the following day. Q1 GDP of -0.2% was a shock and the market is now forecasting growth of at least 2.5% in Q2.

The UK’s GDP will also be out this week. With its yearly GDP growth forecast revised to 2.7%, the Bank of England is likely to follow the US and be the second major central bank to raise rates. “Situations in the US and the UK are quite similar in that the economy is not that solid,” Poon shares. “Property markets in both countries do perform well, but retail sales are weak. I am just wondering if central banks can be going in two opposite directions given the close connection of markets nowadays.”BM