Veracity Of Chinese Data Questioned, But Lifts Sentiment Nevertheless

Overview: The veracity of Chinese data will be questioned by economists, but today's upbeat reports round out a picture that began with stronger exports and a surge in lending. Chinese officials, we argue, had a "Draghi moment" and decided to do "whatever it takes" to strengthen the economy in the face of US tariffs and during the 70th anniversary of the Revolution. The stronger Chinese data helped lift extend the MSCI Asia-Pacific Index for the fourth session. Europe's Dow Jones Stoxx 600 is struggling, and its five-day rally is at risk. Benchmark yields are rising. The US 10-year is near 2.60%. It bottomed in late-March near 2.34%. The yield on the 10-year German Bund approached minus 10 bp at the end of last month and is now near +10 bp.  The 10-year UK Gilt yield dipped below 100 bp a few weeks ago and is now near 1.25%. Japan's 10-year yield remains below zero. The dollar itself is mostly heavier, though softer New Zealand inflation has heightened speculation of a rate cut as early as next month, and this is weighing on the New Zealand dollar. The euro is firm above $1.13, while the greenback is flat against the yen near JPY112.00. Most emerging market currencies, including Turkey and South Africa, are firmer.

Asia Pacific 

China reported a batch of stronger than expected data. Industrial production jumped 8.5% year-over-year. The median forecast in the Bloomberg survey was for a 5.9% pace. Retail sales surpassed the median forecast for an 8.4% rise and instead increased by 8.7%. Fixed asset investment matched the 6.3% projected increase. These are said to translate into 6.4% year-over-year GDP, matching the Q4 performance. Many economists find inconsistencies in Chinese data and often question the accuracy. Nevertheless, the data seems broadly consistent with official efforts to strengthen the economy.  

Yet it does seem that challenges in the region remain and China is still at the center of it. Consider Japanese exports. They fell 2.4% year-over-year in March. It is the fourth consecutive month of decline. Exports to the US were up 4.4% and to Europe, up 7.3%. Shipments to China were off 9.4%.  Singapore, which is a key hub in Asia, reported an 11.7% decline in non-oil exports in March on a year-over-year. Electronic exports were off nearly 27%, pharmaceutical exports were more than 36% lower, and petrochemical shipments more than 15% lower.  

Despite the drop in exports, Japan's trade surplus was larger than expected at JPY528.5 bln, as imports were also weaker than expected. The 1.1% rise in imports was less than half the increase economists expected. Net exports then appear likely to have been a drag on Japan's Q1 GDP. Other data point in the same direction. Earlier today Japan reported that February's industrial output, which it had previously estimated rose by 1.4%, increased by only 0.7%. And the tertiary index, which covers the service sector was expected to pare January's 0.6% increase by slipping 0.2%. Instead, it unwound all of January's gain.  

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Read more by Marc on his site Marc to Market.

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