Written Commentary
Written by Marc Ostwald, ADMISI’s Global Strategist & Chief Economist
- China activity data, Japan Orders and Swedish CPI to be digested, India Trade, Canada Manufacturing Sales and NY Fed Manufacturing survey ahead; smattering of central bank speakers; IEA oil market, EU MARS crop and EIA Drilling Productivity reports; markets focused on Fed
- China: Industrial Production and Retail Sales indicate solid momentum, but Unemployment jump and FAI underline still patchy nature of recovery
- German state elections underline voter frustration and anger on Covid-19 related issues, raise possibility of ‘traffic light’ coalition at federal election in September
EVENTS PREVIEW
The day’s major data releases are heavily front loaded, with Japan’s Machinery Orders, the run of China activity data and Swedish CPI to be digested, while the US NY Fed Manufacturing survey, Canadian Manufacturing and Existing Home Sales and India’s Trade Balance lie ahead, the latter kicking off a busy week for Asian trade data (Japan, Singapore, Indonesia ahead). A smattering of central bank speakers, the EU’s MARS Crop Bulletin and US EIA Drilling Productivity Report are the highlights of the events schedule, as markets await Wednesday’s perhaps key FOMC meeting.
In terms of the run of China data, the better than expected Industrial Production and Retail Sales data suggest the recovery continues to have decent momentum, but this is tempered by the jump in the Unemployment Rate to 5.5% from 5.2%, and the smaller than forecast 35.0% y/y (vs. expected 40.9%) rise in Fixed Asset Investment. The former underlines that the recovery remains rather patchy, while the latter is a little disappointing given the cumulative volume of stimulus and lending, though it did at least see Private sector FAI (36.4% y/y vs. Dec 1.0%) strengthening more than Public, even if flattered by base effects, and overall FAI was in fact only 3.5% higher than the equivalent period of 2019. It should be added that while Retail Sales look strong on the surface, they were actually lower in m/m terms relative to December, though travel restrictions and localized shutdowns will have served to dampen spending. While Q1 GDP is set for a very strong rise, softening PMIs give plenty of reason to doubt whether that base effect flattered momentum will be sustained into Q2 and beyond.
The German state elections underlined the degree of frustration at the slow vaccine roll-out in Germany as well as the anger at the mask procurement scandal, which saw the CDU slump to a record low vote in Baden-Wuerttemberg, historically the most pro-CDU state, and tends to point to Bavarian CSU premier as the more likely Chancellor candidate in September’s federal election. However the results also hint at the possibility of a so-called ‘traffic coalition’ (Greens, SPD and FDP) emerging as an outcome for the Federal elections, which markets may see adversely, even if the participation of the FDP would limit the degree to which this signals a shift to the left in political terms.
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