The week concludes with a made-up data dump out of everyone’s favorite communist economy. Chinese GDP growth allegedly ticked down -10bps to 6.7% YoY in Q1 and the quarter allegedly ended on a positive note with Retail Sales, Industrial Production, Fixed Assets Investment, Money Supply and Total Social Financing growth all accelerating sequentially in March. Here's a brief summary:
- March industrial production in China was +6.8%, which was better than consensus and a sequential increase from February.
- March retail sales were also better than expected at +10.7% year-over-year.
- The truly blow out number was on government spending. For the month, fiscal spending was up 20.1% year-over-year!
While we’ve been right on our call for both the Chinese economy and Chinese yuan to avoid falling off a cliff over the intermediate-to-long term, a lot of the reprieve in Chinese capital outflows and slowing growth on the mainland has been perpetuated by a reversal of the trend of depreciation in the PBoC’s yuan fixing.
But now that the U.S. dollar appears to making a series of higher-lows vs. peer currencies, we expect a meaningful increase in pressure on the CNY and CNH from here. That should propagate another bout of global deflation fears over the next 3-6 months.