Chinese economy accelerates
The publication of the last batch of Chinese hard data painted a better-than-expected picture of the country’s economic situation. Investors have increasingly worried that slowing growth in the world second largest economy would have a significant global impact. In addition, the trade war unleashed by Donald Trump more than a year was expected to worsen the situation. However, after a rough start into the year, data seems to suggest that the worse over. Retail sales accelerated to 8.7%y/y in March versus forecast of 8.4% and 8.2% in December (no data in January and February due to New Year holidays). Industrial production surprised the most as it jumped 8.5%y/y last month, while market participants expected an increase of 5.9%. Globally, the economic activity stabilised somewhat in the first quarter as GDP growth printed at 6.4%y/y, beating estimates of 6.3%.
Overall, we do not believe that those impressive figures indicate that the Chinese economy is out of the wood. At best, it suggests a slower pace of deceleration. The lack of reaction in both the FX and the equity market indicate that it is not much to celebrate: the yuan barely appreciated against the greenback woth USD/CNY sliding 0.30% to 6.69, while the CSI 300 edged up by 0.04%. On the other hand, it can be seen as a hard blow to the US administration that has been calming for months that the trade war hurting China badly. We do not believe those data are game changer but it could definitely put US negotiators in a weaker position.
The calm after the storm ?
It’s been a very intense period for the GBP. Yet now that a no deal risk is back to minimum and that the European Council appears willing to provide the UK all the time it needs in order to reach an agreement, the wording should rather be that it turns out to become a “permanent extension” and that the 31 October 2019 deadline is thus not written in stone. The UK is expected to take participation in 23 May 2019 EU parliamentary elections in order to ratify the current departure date.
Still, although GBP risk is back to normal, it is becoming clearer that the risk to the real economy is still vivid. The Bank of England adopted a wait-and-see approach in the past 8 months while despite a strong labor market, the economy has been facing major disruptions on the front of fixed asset investment, external trade or inflation. March CPI figures are pointing towards a slowdown to 1.90% (prior: 2%) year-to-year and remains flat m/m (0.20%) while producer prices stay on track (2.40% y/y).
Following recent releases, GBP is likely to drop in current session. Currently trading at 0.86745, EUR/GBP is heading along 0.87040.
