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Gold Prices Fall Amid Rate Jitters; Copper Steady as China Stimulus Eyed 
China's May real activity data remained soft in general, in line with market expectations. Industrial production (IP) growth edged up to 6.1% y/y from 5.9% (consensus: 6.0%) a further improvement from 5.6% in March, but is still below the Q1 average of 6.4%.
Retail sales growth was 10.1% y/y in May, up from 10.0% in April, and below the Q1 average of 10.5%. Meanwhile, fixed asset investment (FAI) continued its downward trend, with growth of 11.4% YTD from 12.0% in April (consensus: 11.9%), and reaching another 14-year low (2014: 15.7%), notes Barclays.
Looking ahead, Barclays assumes any pickup in FAI growth is likely to be constrained by the following factors:
- 1) low growth in total funding available (6% YTD)
- 2) a significant decline in large investment projects in the pipeline (-20% YTD)
It is still difficult to see coherent signs of near-term stabilization from the real activity data. The pickup in IP was led by an increase in crude oil processing rather than other manufacturing activity, reflecting stockpiling and inventory constraints for crude oil after a spike in oil imports in recent months. As a result, Barclays revised the IP growth forecast for Q2 to 6.3% from 7.2%, and the full-year forecast to 6.6% from 6.8%. Meanwhile, a few positive signs in the economy are seemed to be emerging, including another consecutive month of improving housing sales (15.0% y/y), faster IP growth in high-tech industries (9.3% y/y), and a rapidly expanding online retail sector (38.5% YTD) with a growing share of overall retail sales.
GDP growth is expected at 6.7% y/y in Q2 and 6.8% for the full year given recent stepped-up easing measures, estimates Barclays. This assumes stepped-up policy easing measures to stabilize the property market, further boost infrastructure investment and lower the cost of financing in the economy. Risks to the outlook remain to the downside, with the housing market recovery and government-led infrastructure investments holding the key for near-term stabilization.
