Good morning,
As credit goes so does China
A pullback in credit growth in China in April has caused a similar slowing in retail sales, investment and industrial production according to data released over the weekend. These numbers come only a month after a huge credit number and the whipsaw of growth to contraction shows that the People’s Bank of China is struggling to stabilise the world’s 2nd largest economy.
The longer term vulnerability of the Chinese debt situation is made apparent by the central bank’s quick reassurance that additional stimulus would be made available if it were to be needed. The signals coming from Beijing however are rather patchy and we cannot be entirely confident on the make-up of any new, additional spending plan.
CNH weakening on risk and flows
Recent moves in the CNH have seen the yuan weaken against the USD while the onshore/offshore spread hints at further outflows from the mainland. Markets have largely glossed over this China news as is their want but we are looking for the CNY/H to remain unloved in the coming weeks.
Fresh from the near-miss in the Eurovision song contest, the Aussie dollar seems to have taken this China news positively and is moving higher at the outset for the first time since Tuesday.
Carney keeps going
Brexit news has been rather thin on the ground since the Bank of England’s press conference last Thursday. Of course, the echo chamber of the Sunday political shows carried on asking whether the Governor of the Bank of England was right to weigh in and did he go too far. The market moves however took place on Thursday and we open this European session with a rather quiet pound.
One thing that has remained absent from the landscape is a new set of opinion polls. We are halfway through May and only 3 polls have been released with nothing in the past week. According to pollsters however we should expect a couple, including two telephone polls, this week. We will have to see if the targeting period overlaid the Governor’s announcements and if they did how much of an impact they would have had.
Obama had little effect, nor would you have to say did Christine Lagarde and the IMF; Carney is the head of a British institution and that may lend itself to being more sympathetically heard. For now we must wait on real data – inflation tomorrow, jobs on Wednesday and retail sales on Thursday – for some sterling movement.
Dollar dip done?
Elsewhere, the US dollar has a strong retail sales number on Friday afternoon to thank for its backbone into the weekend. USDJPY and EURUSD both saw moves in the greenback’s favour as sales handily beat consensus.
Some investment community members are starting to call for the end of the recent USD weakness and a period of USD over strength – drunk on a cocktail of high uncertainty over political and economic news flow twinned with financial market unease – is here.
The Federal Reserve is clearly worried about the strength of the USD in a rate hiking atmosphere and this week’s minutes will likely echo those concerns whilst simultaneously keeping ‘every meeting live’ for a movement in policy.
The Day Ahead
Today’s data cupboard is rather sparse.
Have a great day.