Chinese April Data Disappoints

Market movers today

Today we will look out for one of the early indicators of May economic activity in Germany with the ZEW index.

The US releases retail sales providing more insights to the state of the US consumer. We also have FOMC members Mester, Williams and Bostic on the wires.

In Sweden, Prospera inflation expectations are published, see more below.

Overnight, the first Q1 GDP estimate is released from Japan. The service sector has improved through Q1 while the manufacturing sector is struggling like we see globally. Consensus has a 0.1% increase.

The 60 second overview

Chinese April data disappoints: As signalled by weak PMI’s lately, April activity was weaker than expected. Retail sales increased from 10.6% y/y in March to 18.4% y/y in April but it was less than consensus expectation of 21.9% and it hides over a big monthly drop in April, as the y/y rate is lifted by favourable base effects from the plunge in April seen last year during the Shanghai lockdown. Industrial production also disappointed rising only to 5.6% y/y (consensus 10.9% y/y) from 3.9% y/y, despite similar positive base effects. Home sales were also soft showing a big monthly decline in April. Overall the data clearly suggests, the recovery weakened in April after a very strong Q1.

The coming months will be key for showing whether this is a temporary set-back to a “too strong” Q1 after the reopening or whether it reflects a faltering recovery. Comments from the National Bureau of Statistics showed concern saying that “the property market is in recovery but more efforts are needed” and that “insufficient demand restricts the industrial sector”. We are likely to see more monetary policy stimulus soon on the back of these data as inflation is also running close to 0% currently. Chinese stocks were slightly higher overnight as the soft data was already priced in markets.

Weak US data: The US Empire index, the first regional survey for May, dropped sharply from 10.8 to -31.8, close to the recent low in January. The indicator is very volatile so monthly observations should be taken with a grain of salt. Yet, it points to a still weak US manufacturing sector.

Fed’s Bostic does not see rate cuts until well into 2024: “My baseline case is we won’t really be thinking about cutting until well into 2024,” Bostic said Monday in an interview on CNBC. “If you look at most measures of inflation, they’re still two times where our target is. And so that’s a long distance still to go.” “If I had a bias between going up and going down as our next action, I would say we might have to go up.” This contrasts with market expectations of 65bp in H2 this year. We expect the Fed to be on hold rest of the year.

New forecasts from the EU Commission: Yesterday, the EU Commission lifted euro area growth forecasts saying that the economy had performed better over the winter. 2023 growth was revised higher to 1.0% from 0.8% and 2024 growth to 1.7% from 1.6%. The Commission sees inflation falling from 5.8% this year to 2.8% in 2024 (Danske Bank 2.1%), and hence still clearly above the ECB’s 2% target.

Equities: Global equities higher yesterday despite very weak macro data. Yet another day with little volatility and relatively little market moving news. Markets reacted negatively to the big plunge in the Empire Fed index but moves started to fade the shortly after the surprise. In US, Dow +0,1%, S&P500 +0,3% and Nasdaq + 0,7%. Asian markets are holding on to gains this morning despite weaker than expected data from China. European futures a little higher while US futures are a little lower.

FI: There was a modest rise in global bond yields yesterday combined with a bearish steepening of the global yield curves. However, the spread between the peripherals and Bunds tightened modestly. Furthermore, the German ASW-spreads also tightened and the Bund ASW-spread dipped below 70bp.

FX: Commodity currencies AUD, NZD, CAD and NOK were the biggest winners on the back of a rising oil price in a relatively quiet session yesterday. EUR/USD still trading below the 1.09-mark. USD/JPY climbed above 136. EUR/NOK fell to around 11.53, while EUR/SEK initially appreciated on a soft CPI print from Sweden but later retraced and ended the session lower below 11.25. GBP strengthened and took EUR/GBP below 0.87.

Nordic macro

In Sweden, Prospera May money market inflation expectations will be released. In recent months 1y CPIF expectations have stabilized at 4%, while 2 and 5 y expectations have risen slightly to 2.4 % and 2.2 %, respectively. We expect to see a resumption of the downward trend on all horizons as other survey data suggests declining corporate selling price expectations.