China’s Q2 GDP growth slows sharply to 4.3%, missing forecasts and marking its weakest pace since late 2022, while Nikkei and Kospi extend a powerful rally on cooler US CPI and the Aussie holds firm just under 0.7000 as the yen stays pinned above 162.

Wednesday’s Asian session is dominated by China’s second-quarter GDP release, per live Reuters, Bloomberg, Investing.com and FXStreet coverage. The National Bureau of Statistics reported annual growth of 4.3%, below the roughly 4.5% consensus from a Reuters poll of 54 economists and down sharply from the first quarter’s 5.0% expansion, marking the slowest pace of growth since the fourth quarter of 2022. On a quarterly basis, GDP rose 0.9%, in line with expectations but down from 1.3% in the first quarter. Analysts pointed to weak domestic demand and the lingering drag from the oil shock tied to the Iran war as key culprits, even as resilient exports and stronger industrial output partially offset the softness. Beijing’s official 4.5%-5.0% full-year growth target is now at genuine risk for the first time since the pandemic, and the International Monetary Fund has separately flagged that a renewed Middle East conflict could extend commodity price volatility and further threaten global supply chains.

The activity data released alongside the GDP figure painted a more nuanced picture than the headline miss suggested. June retail sales rose 1.0% year-on-year, sharply beating the -0.1% consensus and reversing May’s 0.6% decline, while industrial production accelerated to 5.3% from an expected 4.6% and May’s 4.5% reading, supported by resilient export demand for electric vehicles, batteries and AI-related hardware — China’s monthly car exports surpassed one million units for the first time in June. Fixed-asset investment, however, fell a steeper-than-expected 5.7% year-to-date, extending its decline from May’s 4.1% drop and underscoring the continued weakness in China’s property sector and private capital spending. China’s trade surplus widened to $125.62 billion in June, a dynamic that risks exacerbating trade tensions with partners including the European Union even as it cushions the broader growth picture.

The market reaction has been notably muted relative to the size of the miss, a reflection of just how much Tuesday’s US inflation surprise has already reshaped the session’s backdrop. AUD/USD, the cleanest liquid proxy for Chinese growth in the G10, is holding firm near a three-week high just under the psychological 0.7000 level, with broad US Dollar weakness following Tuesday’s much-cooler-than-expected US CPI print — which pulled annual inflation down to 3.5% from 4.2% — comfortably offsetting the drag from the China data. Regional equities are broadly participating in the post-CPI relief: the Nikkei 225 has climbed roughly 0.9% to above 68,300 and the Topix has added about 1% to 4,080, with AI and semiconductor names including Kioxia Holdings, Advantest, Tokyo Electron and Lasertec leading gains, even as Japan’s own May machinery orders data fell more than expected in a sign of continued weak business investment. In South Korea, the Kospi and SK Hynix are extending an extraordinary rebound after Monday’s historic rout, which had briefly triggered circuit breakers and an 8% single-day plunge before a sharp reversal.

In Hong Kong, the Hang Seng Index has rallied sharply to 24,751.09, up roughly 1.7% from Tuesday’s close of 24,340.73, as the broadly risk-on tone spreading across the region on the softer US inflation data outweighs the China GDP miss. Alibaba and Tencent have shown some stabilisation after a difficult stretch, though the index remains well off its recent highs. In currencies, USD/JPY remains pinned above 162, its weakest level for the yen in roughly four decades, as the threat of Bank of Japan or Ministry of Finance intervention continues to act as the only meaningful brake on further weakness even as the structural US-Japan yield differential continues to favour Dollar strength. In commodities, Silver has pulled back below $60 an ounce to trade near $58.41 even as softer US Treasury yields continue to cushion precious metals broadly, with the metal still well off January’s record high near $121.67, while Natural Gas holds a tight range near $2.90 per MMBtu as ample US production and a softening mid-summer weather outlook offset still-elevated cooling demand. In digital assets, Bitcoin holds above $64,000 on reduced near-term Fed hike odds, and within today’s featured majors Chainlink is sharply outperforming the broader crypto market on fresh Aave CCIP adoption news, even as Cardano continues to lag the post-CPI bounce amid a prolonged technical downtrend. Looking ahead through the remainder of the session, the decisive variables are any further reaction in Chinese equities and yuan-sensitive currencies, continued Hang Seng price action into the close, and the approach of Fed Chair Kevin Warsh’s second day of congressional testimony and Wednesday’s Bank of Canada rate decision later in the US session.

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