Chinese economic recovery confirmed

This morning we got to know the pace of China's economic growth. This reading has been in the spotlight of investors as it shows how the recovery in the Middle Kingdom is progressing after the lifting of covid restrictions, which were in force for almost 3 years. The result turned out to be the highest since the first quarter of last year and amounted to 4,5 percent. Stock markets in Asia, however, did not fall into euphoria. The indices record moderate declines. Hang Seng lost 0,81 percent.

Big improvement in the economy

Official data showed that China's GDP in the first quarter of this year was 4,5 percent. year on year This faster pace was not expected (4%). In the fourth quarter of last year, the Chinese economy grew at 2,9 percent. So there is a big improvement. On a quarter-on-quarter basis dynamics amounted to 2,2 percent. – which was in line with the consensus.

Strong PMIs for services in February and March indicated an improvement in the situation. In turn, the same measures suggested a modest recovery in industry.

Retail sales also surprised on the upside, growing by 10,6%. (consensus 8%). Industrial production less than expected by the market (3,9 percent, consensus 4,7 percent).

Investments in fixed assets in annual terms were weaker than expected and increased by 5,1 percent. compared to last year, as investment in infrastructure and manufacturing slowed down. Real estate investment, meanwhile, continued to decline.

These publications suggest that the economy bounces back after the disruption caused by the abrupt lifting of covid restrictions in December, driven by consumption, services and infrastructure, but easing inflation and rising bank savings raise questions about the strength of domestic demand. Recall that the government has set a modest economic growth target of around 5%. for this year, after it greatly missed the expectations for 2022.

It is possible that the Chinese economy will receive another stimulus from government stimulus later in the year to stimulate infrastructure investments (including the construction of a subway line and increasing the number of 5G towers) and consumption.

The market looks optimistic

In the US we had a further rise in government bond yields yesterday. This was the result of a better report by Empire Manufacturing (10,8 points) and the aftermath of Friday's increase in the one-year inflation index from the University of Michigan report. Wall Street's three major indices ended up closing the day higher generating moderate increases. At this point, Fed Fund futures value 88 percent. chances for a 25 bps hike in May. They also assume that the peak of the whole cycle will be around 5,28 percent. (upper bound) in June and also expect the Federal Reserve to make a total cut of 55 bps in the second half of the year.

On April 1, the market priced the chances of an upward move at the next meeting at 58 percent. therefore, for the last few days there has been a belief that the Fed will be a bit more restrictive in its actions. Yesterday's New York EM result showed the first increase in five months, previously the index was in negative territory. The market is certainly optimistic the falling component of the prices paidwhich amounted to 33 points. Previously it was 41,9 points. New orders also improved (25,1 pts vs. -21,7 pts).

The US dollar appreciated slightly. Major Currency Pair (EUR / USD) lowered its exchange rate to 1,0910, after which today in the morning a slight rebound to 1,0940 can be seen. So far, going above 1,1 has been a temporary incident. The zloty continued to strengthen, mainly against the euro. The EUR/PLN quote fell below 4,63 for a moment. On the other hand, USD/PLN, after falling below 4,19 at the end of last week (Thursday), has been growing moderately for two days and currently the exchange rate is at 4,2345.

Source: Łukasz Zembik, OANDA TMS Brokers