PBoC Steps in as Chinese Economy Slows

Market movers today

Today, the IMF releases its latest take on the global economy also known as the World Economic Outlook. We are looking forward to reading the IMF’s assessment of the impact of the Russian invasion, Western sanctions and rising commodity prices on the global economy and inflation.

Besides that the calendar is relatively thin this week. On Friday, preliminary PMIs for April are due out. We are also still monitoring the Russian invasion of Ukraine. Also keep an eye on Fed speeches ahead of the next meeting in early May.

The 60 second overview

China: We had several key figures out of China on Monday. Q1 GDP growth surprised on the upside with 4.8% yoy but both retail sales and unemployment figures indicate slowing in March as COVID curbs hit activity. Retail sales declined 3.5% yoy and the unemployment rate rose to 5.8%, both significantly worse than expected. On top of that the housing market keeps slowing as annual house price increases declined to 1.5% from 2% in February. The Peoples Bank of China is stepping in to cushion the slowdown and announced a cut in the reserve requirement ratio on Friday among other things. Asian stock markets reacted to the Chinese numbers with a decline this morning.

Yen: In Japan, FM Suzuki repeated Bank of Japan (BoJ) governor Kuroda’s worry about sharp yen moves this morning as a perfect storm of increasing global yields and high energy prices is weighing heavily on the yen. USD/JPY hit a 20-year low this morning. Stepping in to support the yen is at odds with the BoJ’s easy monetary policy and we expect it will take a further yen slide for Tokyo to step in.

Russia: The Bank of Russia looks set to continue to cut its key interest rate following the cut to 17% on 8 April, despite accelerating inflation. Central Bank Governor Elvira Nabiullina hinted at this on Monday as she aims “to increase the availability of credit for the economy”.

ECB: On Thursday, the ECB was in no rush to tighten.

Equities: US equities were directionless on Monday and the sector performance quite even, but with a slight preference for growth cyclicals. Reflation winners, as materials and energy, continued to outperform. S&P500 unchanged (-0.5% for the week), Dow -0.1%, Nasdaq -0.1% and Russell 2000 -0.7%. Similar setting last week, with value cyclicals and energy outperforming while expensive defensives stocks (for instance, health care) have underperformed.

FI: Thursday’s ECB meeting ended with a significant bullish steepening of the EUR curve amid mild spread widening despite Lagarde signalling that no new bond buying is around the corner.

FX: EUR/USD moved sharply lower after the ECB meeting and is now trading below 1.08. EUR/GBP declined below 0.83. Oil has risen from USD104/barrel to now USD113/barrel.

Credit: The cautious sentiment in credit markets continued with Itraxx main closing the recent session unchanged at 78.8bp, while Xover tightened 3.3bp, closing the session at 374.8bp.