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Chinese Economy Grows Again

Market movers today

We get ZEW expectations from Germany today. It will be interesting to see if we get a rebound after bank concerns put a dent in an otherwise positive trend this year.

In the US, March housing starts will shed further light on the shape of the housing market. Later we also have Fed’s Bowman on the wires.

Today is the ‘Tax Date’ in the US, which marks the annual deadline for filing income taxes, and thus also the largest daily inflow of tax revenue during most years. The revenue will provide some clarity on how close the US government is to defaulting due to the debt ceiling. The Treasury General Account has already shrunk to the lowest level since late 2021, while US 5y CDS is trading at the highest level since 2012. Read more in our earlier note: Research US – We expect a debt ceiling resolution only by next summer, 23 February.

The 60 second overview

China: The Chinese economy expanded more than expected in Q1 growing 2.2% q/q vs 2.0% q/q consensus and up from 0.0% q/q in Q4. Consumer spending in particular looks strong. Retail sales rose 10.6% y/y in March. Data confirms that Chinese economy is up and running again after the long period of lockdowns that ended at the beginning of the year, while still growing slower than it did before the crisis.

G7: G7 affirmed its commitment to supporting Ukraine for as long as it takes to help the country defend itself against Russia. It also recognised the need to work together with China on common interest and called for a peaceful resolution to Taiwan-related issues.

US: NY Fed’s Empire Manufacturing index ticked sharply higher to 10.8 (from -24.6) driven in particular by stronger new orders. Notably, prices paid index dropped further, and hovers just above the pre-covid average. Employment index ticked modestly higher, yet remains at weak levels. Manufacturing is not the most important inflation driver right now, but generally some positive signs ahead of the flash PMIs due on Friday.

Equities: Global equities rose yesterday as stocks in US rallied the last couple of hours and went from negative to positive levels. Yet again, it was the group of cyclicals together with value leading the increases. However, it was not due to earnings reports like on Friday, instead higher yields and goldilocks set of macro data drove the rotations yesterday. In US, Dow +0.3%, S&P 500 +0.3%, Nasdaq +0.3% and Russell 2000 +1.2%. Equity markets are a bit mixed in Asia this morning. The sum of release of Chinese macro data this morning is positive in our opinion but not enough to lift Chinese equities. Japanese markets are on the flipside higher and should be so in aftermath of the macro and financial market moves yesterday. Futures in Europe are marginally higher this morning while US futures are showing small declines.

FI: Rates rose from the long end through most of yesterday’s trading session, with 10y German Bunds ending just shy of 2.5%. The rates up move yesterday was supported by the US empire manufacturing that came in stronger than anticipated, but also the significant long-end supply expected to come to the market today.

FX: The broad USD comeback on the back of rising US yields continued yesterday, with EUR/USD now firmly below 1.10 once more. The NOK had a poor afternoon whereas the SEK showed some resilience, thus bringing NOK/SEK below 0.99. The CEE currencies continued their recent run, with HUF and PLN as the top performers over the past 5 trading sessions.

Credit: Credit spreads sold off slightly yesterday with iTraxx Xover and Main closing 4bp and 0.3bp wider, respectively. Primary market activity was subdued with only a couple of issuers bringing new deals to the market.

Danske Bank
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