On the heels of March’s “inspiring” PMIs and less than a week after exports and credit growth surprised to the upside in rather dramatic fashion, China is out with hotly-anticipated GDP, retail sales, FAI and IP numbers.
The short version is that the data is an across-the-board blowout – although that may prove to be a bit hyperbolic in retrospect.
GDP came in at 6.4% YoY in Q1, ahead of estimates, defying those who expected a further deceleration. Industrial output was a huge beat, rising 8.5% versus estimates of 5.9%, while retail sales beat too, jumping 8.7% in March against consensus of an 8.4% rise. That industrial output figure blew away even the most optimistic estimate (the range was +5.2% to +6.2% from 33 economists). January-March FAI matched estimates, rising 6.3% YoY.
Needless to say, the market is prone to treating any and all top-tier data out of China as pivotal at a time when the fate of the global economy still hangs in the balance and nobody is quite sure which way things will inflect – for the better, or (back) for the worse.
The nascent “cyclical reflation” narrative which gingerly took root in April following the late-March growth scare/DM bond rally rests on a decidedly shaky foundation. Although market participants have been keen to focus on the good news (e.g., the above-mentioned March PMIs out of China, the better-than-expected export and credit growth data last Friday, the solid March payrolls report in the US, etc.), an honest assessment is that on balance, the incoming numbers have been mixed globally if you take a wide sample.
Until now, that is. With the fate of the global cycle resting largely with China, today’s data will be a huge relief – especially to those who were concerned about the durability of the rally in the face of ominous headline after ominous headline on global growth.
In addition to the econ, the PBoC offered 200 billion yuan of MLF. That’s no trivial matter. 366.5 billion yuan in MLF matures on Wednesday and how Beijing decided to deal with that holds clues for the future of monetary policy. “[This will] be a test case after the cut to banks’ reserve ratios in January that helped cover huge 1Q MLF redemptions”, Bloomberg’s Kyoungwha Kim wrote, adding that considering “there haven’t been any new MLF loans this year”, the PBoC needed to deliver something in order to avoid draining liquidity. The PBoC also sold 160 billion yuan of 7- day reverse repos.
Obviously, market participants will be parsing this all day and we’ll certainly have more, but for the time being, suffice to say this “should” – and we emphasize “should” – serve to validate not only of the “stabilization” narrative in China, but also the “reflation” story more generally, at a time when the world was desperately seeking convincing evidence before latching on.
Read more on Friday’s export and credit growth figures
