Boom! It’s Monday.
Let’s hit the ground running in China, where we got a raft of econ data overnight. People like bullet points, especially when they’ve got a vacation hangover, so here’s the quick take:
- CHINA 1Q GDP GROWS 1.3% Q/Q; EST. 1.5%
- CHINA 1Q GDP GROWS 6.9% Y/Y; EST. 6.8%
- CHINA MARCH INDUSTRIAL OUTPUT RISES 7.6% Y/Y; EST. 6.3%
- CHINA JAN.-MARCH RETAIL SALES RISE 10.0% Y/Y; EST. 9.6%
- CHINA MARCH RETAIL SALES RISE 10.9% Y/Y; EST. 9.7%
- CHINA JAN.-MARCH FIXED INVESTMENT RISES 9.2% Y/Y; EST 8.8%
Right, so the most important thing about all of that is that it gives the PBoC some breathing room when it comes to staying the course with regard to the tightening bias.
Or, put differently, think about all of the data points above in the context of what we said on Sunday night in “Here’s The Most Important Thing You Missed On Friday.”
“[This] makes the problem of excess leverage look a little more manageable – at least as long as factory reflation stays strong,” BI economists Tom Orlik and Fielding Chen said on Monday.
But see there’s another problem. Recall that we talked a bit about factory reflation in China last week in a post called “Goldman Delivers A ‘Real’ity Check.” Here’s what Goldman said earlier this month:
China’s industrial sector has been reflating strongly, with PPI running at over a 10% annualized pace. This has driven nominal growth higher and contributed to the recent surge in industrial profits. As such, we also expect the authorities to rein in leverage further on any major upside growth surprise, dampening any “animal spirits” effect and putting a speed limit on growth.
Well, witness your “upside surprise” in today’s econ data. Now let’s see how long it takes the PBoC to hike repo rates again and pull back on the liquidity injections.
Anyway, fuck it. Moving on.
As we noted Sunday evening following President Recep Tayyip Erdogan’s “big league” referendum in Turkey, the lira surged against the dollar. You’re going to be hearing a lot about this today, especially if you know anyone who cares about emerging markets.
As Bloomberg writes, “many investors see the victory as removing one source of uncertainty they have to juggle, after a failed coup attempt last summer, credit-rating downgrades and the lira’s slump to a record hurt appetite for the nation’s assets.” Anyone interested in more on this can read our full breakdown here. Long story short: the Great Sultan Erdogan cometh…
Now “The Dude” can get back to ramping the Borsa Istanbul.
Meanwhile, it was pretty clear where the yen and the dollar were headed overnight after Treasury yields fells sharply in a delayed reaction to Friday’s CPI data. We flagged this last night and suggested it would likely set the tone. It did – set the tone, that is.
The yen rose to a five-month high against the dollar, jumping against most of its G-10 peers with geopolitical tension underpinning the safe haven bid. “The price action we’re seeing recently is a bit more risk- off in flavor than the price action that we had several weeks ago,” Todd Elmer, FX strategist at Citigroup in Singapore, said in Bloomberg TV interview. “That does argue for the outperformance of safe-haven currencies such as the yen.”
Unsurprisingly given all of this, gold is sitting near its highest levels since November. “Gold will likely stay elevated given safe haven demand,” Barnabas Gan, economist at OCBC in Singapore, told Bloomberg via email. “I won’t be surprised if gold breaches above its $1,300/oz handle in the foreseeable future.”
European markets were closed. Here’s a snapshot of Asian equities:
- Nikkei up 0.1% to 18,355.26
- Topix up 0.5% to 1,465.69
- Hang Seng Index down 0.2% to 24,261.66
- Shanghai Composite down 0.7% to 3,222.17
- Sensex down 0.1% to 29,432.39
- Australia S&P/ASX 200 down 0.7% to 5,889.95
- Kospi up 0.5% to 2,145.76
And here’s what’s coming up today:
- 8:30am: Empire Manufacturing, est. 15, prior 16.4
- 10am: NAHB Housing Market Index, est. 70, prior 71
- 4pm: Total Net TIC Flows, prior $110.4b
- 4pm: Net Long-term TIC Flows, prior $6.3b
- 5pm: Fed Vice Chairman Fischer Speaks at Columbia University