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China growth slumps on virus lockdowns, real estate woes: poll

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The growth data will be closely watched as the Communist Party gears up for its 20th Congress when Xi Jinping is expected to be given another five-year term as China's president
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China’s economic expansion slumped in the second quarter to levels not seen since early 2020, an AFP poll of analysts found, owing to painful Covid lockdowns and lingering weakness in the real estate sector.

Leaders of the world’s second-biggest economy remain firmly wedded to a zero-Covid approach of stamping out clusters as they emerge, but the fallout has sapped growth and is pushing policymakers’ annual target of around 5.5 percent out of reach.

The slowdown comes after the country’s biggest city Shanghai was sealed off for two months over a virus resurgence — snarling supply chains and causing factories to shut — while dozens of others grappled with tightened rules to fight local outbreaks.

Gross domestic product is estimated to have expanded 1.6 percent on-year in April-June, according to the AFP poll of experts from 12 financial institutions.

Several analysts expect the economy to shrink on a quarterly basis — a first since 2020 at the height of the pandemic.

According to key gauges, activity in both the services and manufacturing sectors contracted in April and May, said Rabobank senior macro strategist Teeuwe Mevissen.

China’s property sector, an important economic driver, was also “still in limbo”, while lockdowns have severely hit supply and demand, he told AFP.

New home sales for the top 100 developers was 43 percent down on-year in June, according to China Real Estate Information Corporation data, with Nomura analysts adding that metro passenger trips in major cities remained below 2021 levels.

China has only logged a GDP contraction once in recent decades, and analysts expect the latest reading will drag full-year growth to around four percent, slashing earlier estimates.

Economists have long questioned the accuracy of official Chinese data, suspecting that figures are massaged for political reasons. 

And Friday’s official release will be closely watched as the Communist Party gears up for its 20th Congress when Xi Jinping is expected to be given another five-year term as president.

– Zero-Covid vs growth –

China’s policymakers want both zero-Covid and growth, an aim made clear during April’s Politburo meeting, said Macquarie economist Larry Hu in a recent report.

Authorities have vowed efforts to meet this year’s target, a goal reiterated by Xi last month, and leaders will likely “decide whether to double down or back down” in July, Hu said.

“Rhetorically, policymakers are unlikely to drop the name of ‘zero-Covid’ any time soon. That said, they could still redefine ‘zero-Covid’ to make it less and less disruptive to the economy,” he added.

Last Thursday, Premier Li Keqiang said the foundations for China’s recovery are “still unstable” and called for more work to stabilise the economy.

And “multiple uncertainties” also surround the latest rebound, said ANZ Research in a report.

Besides unexpected Covid outbreaks which could trigger more restrictions on movement, “a slowdown in the US economy and the Fed’s hiking moves may cloud the outlook for China’s exports,” ANZ added.

Domestically, consumer inflation climbed in June to the highest in two years as pork prices spiked, official data showed Saturday, threatening relative stability from a global surge in food prices.

China’s economy has started to recover after lockdown restrictions were lifted in Shanghai from June 1, said Oxford Economics’ lead economist Tommy Wu.

But even if future outbreaks are less disruptive as authorities fine-tune their strategies, “pressure on consumption will likely persist”, he added.

This week, an auto industry association downgraded its 2022 sales forecast on weaker demand.

“Consumer sentiment is unlikely to turn sanguine as strict mobility restrictions will be imposed even when the number of Covid cases in a small neighbourhood is very low,” Wu added.

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Asian markets fluctuate as oil, euro struggle on recession fears

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Asian markets fought Wednesday to recover some of the losses suffered at the start of the week as recession alarms continue to ring loud and oil struggled to erase the previous day’s sharp drop owing to growing demand fears.

The euro clawed its way back slightly after hitting parity with the dollar for the first time in two decades, though it remains under pressure from growing concerns about an energy crisis across the eurozone and the European Central Bank’s slower pace of monetary tightening.

Traders are also awaiting the release of a series of key indicators this week, including the all-important consumer price index later Wednesday, with expectations for another increase to a fresh 41-year high.

Another big spike in prices will reinforce the Federal Reserve’s determination to lift interest rates 75 basis points for a second successive month in July, adding to concerns that officials could go too far and tip the economy into recession.

Still, Lauren Goodwin of New York Life Investments said policymakers were unlikely to shift from their hawkish tilt for now.

“This is widely expected to be a really strong print,” she told Bloomberg Television.

“Even if it is not, I don’t think that changes the Fed’s perspective in a couple of weeks. We won’t have enough evidence that inflation is convincingly turning over.”

In a further sign of the pressure being felt around the world from surging prices, the South Korean central bank lifted rates 0.5 percentage points Wednesday, the first such increase since 1999.

While European markets enjoyed a rare advance thanks to bargain-buying, all three main indexes on Wall Street dropped.

Asian equities fluctuated, with Tokyo, Hong Kong, Seoul, Wellington and Taipei slightly higher but Shanghai, Sydney, Singapore, Manila and Jakarta in the red.

– Europe gas crisis –

Stephen Innes at SPI Asset Management said equities could continue to struggle owing to a perfect storm of crises engulfing trading floors.

“Typically, equity markets can deal with one risk relatively well,” he said in a note. “But the current setup of sticky inflation, rapid Fed tightening, growth/recession risks and excessive rates volatility, to name a few, have at times left investors defenceless. 

“And with the market coalescing to a bearish consensus, stocks are having trouble sustaining a meaningful rally.”

Both main crude contracts were flat, staying below $100 and nowhere near recovering the more than seven percent drops suffered Tuesday, hit by bets on a drop in demand and fears of more Covid-19 lockdowns in Shanghai.

The commodity has lost a large chunk of the gains seen after Vladimir Putin’s invasion of Ukraine, despite bans on imports from Russia, with some analysts saying consumers were simply choosing not to buy fuel because of the high price.

Data from the American Petroleum Institute showed US stockpiles rose 4.76 million barrels last week, Bloomberg News reported citing people familiar with the figures, indicating demand slacking off even during the key summer driving season.

Joe Biden’s visit to Saudi Arabia on Friday will be followed intently as he tries to persuade the crude giant to pump more to help reduce prices.

On currency markets, the euro held just above $1.0 a day after hitting parity on Tuesday for the first time since late 2022, with a worsening energy crisis fanning expectations that the eurozone will plunge into recession.

With Russian energy giant Gazprom starting 10 days of maintenance Monday on its Nord Stream 1 pipeline, the bloc — and particularly gas-reliant Germany — is waiting nervously to see if the taps are turned back on.

“A prolonged cut to the gas supply would halt a lot of economic activity, sending (Germany) deep into recession,” said Tapas Strickland at National Australia Bank.

He said July 21 — when the gas should be switched back on — will be a crucial date.

“That date also happens to be the day of the next ECB meeting,” he added. “Either of these events are key risk events. Russia playing gas politics by not switching on the gas supply would likely see the euro lurch much lower.”

– Key figures at around 0250 GMT –

Tokyo – Nikkei 225: UP 0.3 percent at 26,423.11 (break)

Hong Kong – Hang Seng Index: UP 0.6 percent at 20,963.55

Shanghai – Composite: DOWN 0.3 percent at 3,270.99

Euro/dollar: DOWN at $1.0032 from $1.0037 Tuesday

Pound/dollar: UP at $1.1893 from $1.1889 

Euro/pound: DOWN at 84.34 pence from 84.40 pence

Dollar/yen: UP at 137.14 yen from 136.84 yen

West Texas Intermediate: FLAT at $95.80 per barrel

Brent North Sea crude: FLAT at $99.52 per barrel

New York – Dow: DOWN 0.6 percent at 30,981.33 (close)

London – FTSE 100: UP 0.2 percent at 7,209.86 (close)

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Twitter lawsuit accuses Elon Musk of contract breach

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A lawsuit filed against Elon Musk by Twitter accuses him of hypocrisy and seeks to hold him to the terms of his $44 billion deal to buy the San Francisco-based tech firm
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Twitter on Tuesday sued Elon Musk for breaching the $44 billion contract he signed to buy the tech firm, calling his exit strategy “a model of hypocrisy,” court documents showed.

The suit filed in the US state of Delaware urges the court to order the billionaire to complete his deal to buy Twitter, arguing that no financial penalty could repair the damage he has caused.

“Musk’s conduct simply confirms that he wants to escape the binding contract he freely signed, and to damage Twitter in the process,” the lawsuit contended. “Twitter has suffered and will continue to suffer irreparable harm as a result of defendants’ breaches.”

The social media company’s shares edged up slightly in after-market trading when the news broke.

Legal experts and market analysts see Twitter as having a strong upper hand heading into court, Wedbush analyst Dan Ives said in a note to investors.

“This will be a Game of Thrones battle in court with the fake account/bot issue front and center, but ultimately Twitter’s board is holding Musk’s feet to the fire to finish the deal at the agreed upon price,” Ives said.

“Overall this has been a black eye for Musk and horror movie for Twitter (and its employees) with no winners since the soap opera began in April.”

After weeks of threats, Musk last week pulled the plug on the deal, accusing Twitter of “misleading” statements about the number of fake accounts, according to a letter from his lawyers included in a US securities filing.

In his first public remarks since the announcement, Musk took to Twitter over the weekend to troll the company after it said it would sue to enforce the deal.

“They said I couldn’t buy Twitter. Then they wouldn’t disclose bot info. Now they want to force me to buy Twitter in court. Now they have to disclose bot info in court,” he wrote in a tweet, with included pictures of Musk laughing with glee.

The termination of the takeover agreement sets the stage for a potentially lengthy court battle with Twitter, which initially had opposed a transaction with the unpredictable billionaire entrepreneur.

Twitter has defended its fake account oversight and has vowed to force Musk to complete the deal, which contained a $1 billion breakup fee.

– ‘Bent over backwards’ –

The social network says the number of fake accounts is less than five percent, a figure challenged by Musk, who says he believes the percentage is much higher.

“Twitter has bent over backwards to provide Musk the information he has requested, including, most notably, the full ‘firehose’ data set that he has been mining for weeks,” the lawsuit said.

“From the outset, defendants’ information requests were designed to try to tank the deal.”

Musk made his unsolicited bid to buy Twitter without asking for estimates regarding spam or fake accounts, and even sweetened his offer to the board by withdrawing a diligence condition, the lawsuit said.

The way Musk used a large chunk of his Tesla shares to back financing for the deal meant that if stock in the electric car maker declined, be would have to pony up or sell more of it, according to the suit.

“Not only were there no financing or diligence conditions, but Musk had already secured debt commitments that together with his personal equity commitment would suffice to fund the purchase,” it said.

Musk’s ability to terminate the deal to buy Twitter before the “drop-dead” date of October 24 of this year is extremely limited, and closing is subject to little more than approval of Twitter shareholders and regulatory approvals, the suit added.

His norm-defying conduct has come as little surprise to watchers of the Tesla and SpaceX chief after years of statements that flout or test convention and sometimes provoke a crackdown from regulators.

While Twitter has asked the court to enforce the deal, the company’s legal action could yield a variety of outcomes.

“There are a range of possibilities that can come from the Delaware court including settlement, breakup fee paid, deal enforced, and a myriad of other outcomes,” analyst Ives wrote.

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Twitter lawsuit accuses Elon Musk of contract breach

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A lawsuit filed against Elon Musk by Twitter accuses him of hypocrisy and seeks to hold him to the terms of his $44 billion deal to buy the San Francisco based tech firm.
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Twitter on Tuesday sued Elon Musk for breaching the $44 billion contract he signed to buy the tech firm, calling his exit strategy “a model of hypocrisy,” court documents showed.

The suit filed in the US state of Delaware urges the court to order the billionaire to complete his deal to buy Twitter, arguing that no financial damages could repair the damage he has caused.

“Musk’s conduct simply confirms that he wants to escape the binding contract he freely signed, and to damage Twitter in the process,” the lawsuit contended.

“Twitter has suffered and will continue to suffer irreparable harm as a result of defendants’ breaches.”

Twitter shares edged up slightly in after-market trading when the news broke.

Analysts say Musk’s attempted exit from the buyout places the company in a vulnerable state at a challenging moment.

After weeks of threats, Musk late last week pulled the plug on the deal, accusing Twitter of “misleading” statements about the number of fake accounts, according to a letter from his lawyers included in a US securities filing.

In his first public remarks since the announcement, Musk took to Twitter over the weekend to troll the company after it said it would sue to enforce the deal.

“They said I couldn’t buy Twitter. Then they wouldn’t disclose bot info. Now they want to force me to buy Twitter in court. Now they have to disclose bot info in court,” he wrote in a tweet, with pictures of Musk laughing with glee.

The termination of the takeover agreement that Musk inked in April sets the stage for a potentially lengthy court battle with Twitter, which initially had opposed a transaction with the unpredictable billionaire entrepreneur.

Twitter has defended its fake account oversight and has vowed to force Musk to complete the deal, which contained a $1 billion breakup fee.

The social network says the number of fake accounts is less than five percent, a figure challenged by Musk who believes the percentage to be much higher.

Musk’s norm-defying conduct has come as little surprise to watchers of the Tesla and SpaceX chief after years of statements that flout or test convention and sometimes provoke a crackdown from regulators.

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