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China's GDP Recovery Amidst US Dollar Decline and Stock Market Instability
The recovery of China's economy is progressing steadily.
“China’s GDP Recovery Amidst US Dollar Decline and Stock Market Instability”
The recovery of China’s economy is progressing steadily. Today, the GDP for China was announced, showing an expansion of 4.5%, surpassing the forecasted 4.0% for the fourth quarter from January to March, indicating that the country’s economic recovery is on track.
At the quarterly level, the growth rate has accelerated from 0.6% upwardly revised from the previous quarter to 2.2%.
However, this recovery of the Chinese economy is mainly driven by consumer demand, and private investment is still seen as fragile. There are concerns about the sustainability of the recovery, and there are some points to be noted regarding this favorable data.
In terms of real estate investment, while sales have rebounded, new developments have declined for the third consecutive month in March, indicating a weakness.
China’s retail sales in March rose sharply by 10.6% compared to the same month last year, but industrial production remained only a 3.9% increase compared to the same month last year.
While China’s GDP numbers are quite favorable, there are still doubts about whether the government’s target of achieving around 5% annual growth can be met if the government is seen as reluctant to take radical new measures.
Despite solid economic data, market reactions have been mixed. However, the recovery of consumer demand in China’s GDP figures is a good sign for countries that depend on trade with China, such as Australia.
In addition, China’s exports showed an 8.4% increase compared to the same period last year, making the Australian dollar one of the strongest currencies today.
The minutes of the previous policy meeting by the Reserve Bank of Australia were released today, announcing that the interest rates will be kept unchanged in April, but indicating the possibility of future rate hikes, causing the Australian dollar to rise even further.
However, Asian stock markets are not performing as strongly, with China’s CSI300 index rising only 0.3% and Hong Kong stocks ending the trading day in a downturn.
Value stocks are pushing up European stock prices, with attention on the earnings reports of high-tech stocks. Despite the recent rise in US bond yields, European stock markets opened in positive territory today.
Many European indices are outperforming US stock indices this year due to the focus on value stocks in a high-interest rate environment.
While the high-tech-heavy NASDAQ is outperforming the S&P500, with 10-year bond yields rising to a three-week high of 3.60%, high-tech stocks are starting to feel the pressure of this yield increase.
Starting with major high-tech companies, attention is also focused on the technology sector this week with Netflix’s earnings report coming up.
Earnings reports from major banks such as Bank of America and Goldman Sachs are also continuing, but the most important reports are those from mid-sized banks.
However, the current situation remains mixed with some areas showing strength while others remain weak.
Uncertain Outlook for the US Economy Affects S&P 500 Yesterday, Charles Schwab reported strong earnings results, but State Street’s earnings report led to a significant drop in stock prices. Along with M&T Bank, these three institutions experienced a deposit outflow of $60 billion due to risks associated with the financial system.
Concerns over tightening credit conditions that are pushing up the risk of a US recession could weigh heavily on the S&P 500 for a while, and it remains unclear how much the fourth-quarter earnings season will alleviate this burden.
As positive signs, it can be said that the VIX index, which measures volatility, has dropped to its lowest level since January 2022, and the April New York Fed Manufacturing Index has risen more than expected.
Today’s focus will be on the release of March’s building permits and housing starts, as well as the Canadian CPI inflation rate.
USD Falls and GBP Rises on UK Employment Statistics Today’s release of UK employment statistics showed that 169,000 jobs were added in the three months up to February, far exceeding expectations. Average wages also showed stability by rising 5.9%, contrary to predictions of a decrease.
Due to the tight UK employment figures, the pound rose today and recovered to $1.24 against the US dollar.
However, with inflation rates predicted to be below 10% in tomorrow’s release of the UK CPI index, the Bank of England’s rate hike in May is still not fully priced in.
Meanwhile, expectations of a rate hike by the Federal Reserve have risen to 90%.
Following comments from Governor Waller on Friday, the market expects one 0.25% rate cut in the second half of this year.
Although the US dollar had rebounded by more than 1% as Fed members focused on bringing inflation back to 2%, it has retraced those gains today, and the Japanese yen and the euro are continuing to recover their losses.
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