London Open: Shrinking China GDP data leaves markets nonplussed

Market Analysis / 2 Min Read
Stephen Innes / 17 Apr 2020
Pile of currency notes from different countries

London Open 

China GDP 


Not much of a trade to be had on the China GDP which printed within the wide but real expectation band.


The market response to the China data is somewhat nonplussed so far, with AUDUSD and USDCNH barely budging. Although Q1 GDP and retail sales were worse for ware, industrial production rose y/y in March. The production side of the economy is normalizing and end-consumption will follow. If fixed asset investment remains week in the months ahead, markets will be looking for more government support.


On the currency front, CNH and the associated proxies will likely devolve into a day of position squaring and housekeeping ahead of the weekend.


Secular Discrepancy 


A secular discrepancy between financial markets and the real economy is in full effect. The NASDAQ has recovered to flat YTD, while US jobless claims have risen by more than 22 mn over the past month and the Philadelphia Fed index fell to its lowest level since 1980. That's even before I started trading. 


Beyond the policy deluge, a key reason for the strong recovery in risk sentiment is down to a straightforward cure where previous downturns were multi-branched and, on the face of it, more difficult to unwind. A vaccine or more effective treatment can pave the way for fast recovery in output and with the sheer enormity of the policy deluge backing this recovery, it should be explosive at times as employment data normalizes by leaps and bounds. This could go a long way to explain the temporal mismatch between the financial markets and the real economy.


Singapore NODX


Singapore March non-oil exports were +17.6% y/y vs -8.9% consensus, after a revised +3.1% in February (was +3.0%). Gold (which swelled 242.5%), specialized machinery (up 54.2%), and pharmaceuticals (up 48.6%) have produced a big mover for the Sing dollar, even though electronic products also grew by 5.8 percent. To me this suggests the market was short Sing dollars into the number as that punchy gold data will fade when physical becomes more readily available out of Switzerland; I don't have a position in SGD, so am just guessing by price action. And with the NASDAQ lighting suggestions that US exceptionalism is back as the media narrative has returned to Netflix and Amazon while comparing the flatlining MSCI Asia x Japan, the US dollar should come back bid ahead of 1.4200.


The People's Bank of China omits CNY200 bn MLF maturity in Friday's OMO statement, citing reasonably ample liquidity in the banking system. This suggests that the central bank is not rolling over the other CNY100 bn tranche today.

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