Not so fast with reductions, withdrawal on Chinese indices

This morning we learned GDP data from China, which indicates that there is room for reductions interest rates in China it is big. On the other hand, in the case of Europe or the United States, the situation is not so simple. Not only is inflation rebounding, but members of central banks also point out that markets are too optimistic. Will we then see a return to the valuation of a stronger dollar in the first part of this year?

A chance for a stronger recovery in China

GDP in China increased by 5,2% y/y. However, 5,3% y/y was expected. Although the dynamics itself does not seem low, taking into account the entire year, economic growth was close to a 30-year low! It can be seen that with very low inflation and low growth, there is a lot of room to reduce interest rates. However, there is hope in the case of China, as lending has increased significantly. However, this has a delayed effect on the real economy, so if nothing bad happens, we will probably see a stronger recovery next year.

Of course, on the other hand, we must remember that the social situation in China is changing, and more specifically, society is shrinking. In response to today's data, we saw a pullback of up to 3% in Chinese indices. Hang Seng Index Chinese companies were close to the lowest levels from October last year, which means that the index is very close to the lowest levels since 2005, i.e. from the beginning of the index quotation.

Delay in Fed cuts

Moving on to the currency part, Waller from the Fed Management Board indicated that cuts will come this year, but the market values ​​them excessively. This most likely means that March is too early to cut interest rates, but this may be signaled already at the end of this month, when we will have the first Fed meeting this year.

In turn, Lagarde from the ECB said that cuts in the euro zone should start before the holidays. Also in this case, it seems that the April deadline is too early, but a much more important issue for the market is the delay in Fed cuts. This is why the EUR/USD pair falls below the 1,0900 level while yields increase.

After 09:00 we paid PLN 4,3840 for the euro, PLN 4,0308 for the dollar, PLN 5,1063 for the pound and PLN 4,6740 for the franc.

Source: Michał Stajniak CFA, XTB