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China GDP Beat Reveals Cracks

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By Jeffrey Halley, Senior Market Analyst, Asia Pacific, OANDA

With most of Europe, as well as Hong Kong, Australia, and New Zealand on holiday today, the focus of the day has been on this morning’s tier-1 data releases from China. China GDP YoY for Q1 beat expectations, rising by 4.80% (4.50% exp), and rising 1.30% QoQ (0.60% exp).

Industrial Production in March fell to 5.0% YoY from 7.50% in February while Retail Sales had a big miss, slumping to -3.50% YoY (-1.60% exp.) in March from 6.70% in February. Meanwhile, Unemployment in March rose to 5.80% from 5.50% previously, and Capacity Utilisation fell to 75.80% from 77.40% previously.

Overall, the data suggest that China started the year well, but as the quarter has moved on the headwinds have gotten stronger. A slowing property market, sweeping Covid restrictions, the Ukraine invasion pushing up base commodity and energy prices, and a central bank still intent on deleveraging sectors of the economy, have all combined to weigh on China’s growth. About the only thing missing is a meaningful rise in inflation, which is some small sliver of comfort.

It is little surprise, therefore, that mainland equities are heading south today once again, despite China’s PBOC cutting the RRR by 0.25% on Friday, allowing banks to lend more, with agricultural banks’ RRR being trimmed by 0.50%. Markets were disappointed that the 1-year MTF was not also cut on Friday and China’s have your cake and eat it approach seems to be facing more challenges by the day. China will have a second bite of the cherry on Wednesday, when it announces its latest 1 and 5-year Loan Prime Rate decisions.

Virus restrictions across China appear to be heading the wrong way, even as Hong Kong cases plummet. Markets are already seeing the impact on production and trade from the Shanghai lockdowns, and if these start spreading, the picture for China dims considerably, even without the downstream impact from the Russian invasion of Ukraine. China’s official 5.50% GDP target becomes more challenging by the day as consumer sentiment plummets, production costs rise and Covid policies threaten to wreak havoc with production and logistics.  Eventually, this will weigh on other Asian markets as well.

Singapore’s Non-Oil Exports (NODX) fell to 7.70% YoY in March and fell by 2.30%, MoM. Admittedly, it is a volatile data series, but the growth of both electronic and non-electronic exports slowed. Not all of this can be attributed to China of course, but the timing is unfortunate ad the MAS has just tightened monetary policy aggressively. The Malaysia and Indonesia trade balances later today will make interesting reading, especially if exports to China ease.

With US and European markets closed on Friday, making Thursday the technical end of the week, we had a choppy session. Firstly, markets did not like a continuation by the ECB, of the glacial pace of a move towards tightening. One can hardly blame them given the events on Europe’s Eastern border, but markets punished the Euro, which has slumped to multi-decade support around 1.0800.

In the US, markets took fright at inflation and an impending 0.50% hike by the FOMC in early May. US yields shot higher, and equities slumped once again. Admittedly, part of the equity move could be related to investors reducing risk over the long weekend, an eminently sensible idea. However, US index futures on the big three have headed directly south this morning as well, along with Asian stock markets. Ominously, futures on US 10-year bonds have fallen heavily as well, indicating yields will open higher in the US this afternoon.

That has been great for the US Dollar, which rallied strongly on Thursday, and booked gains on Friday and today as well. Substantial falls by the Japanese Yen and the Euro have led the way, highlighting that the impact of interest rate differentials appears to be accelerating. Both the BOJ and ECB have signalled that interest rates are going nowhere in a hurry. One wonders when the same forces will start to materially impact the Yuan and low yield currencies around Asia.

The week is relatively light on the data front globally, certainly for heavyweight data prints. US Housing Starts tomorrow and Markit PMIs on Friday are the highlights. In Europe, we get Eurozone Industrial Production on Wednesday and Markit and Eurozone PMIs for the bloc on Friday. I would suggest all the European data has downside risk. In Asia, apart from trade balances and China’s LPRs, we see India release March WPIs for food, manufacturing, and inflation. Upside prints will increase the noise around the pace of the RBI’s move to a tightening bias and will probably be a headwind for the Sensex.

Japan releases Industrial Production tomorrow, and the trade balance on Wednesday, both of which have downside risks. It releases inflation on Friday, but I haven’t looked at that for 20 years and nor should you. We already know the answer. Apart from being another reason to be long USD/JPY, the main volatility this week from Japan will come from officials speaking about the Yen and “watching markets closely” as the Yen continues to be crushed by the US Dollar.

On the geopolitical front, the brave defenders of Mariupol have given the Russians a one-fingered salute regarding their kind offer to surrender, although they appear to be on their last legs and the city will not be Russia’s Stalingrad. Realistically, we are not likely to get another way of Ukraine risk aversion sweeping markets until Russia finishes reconstituting and resupplying its forces and commences its offensive in Eastern Ukraine.

Asia equity markets tumble on China/US fears.

Equity markets finished weaker in the US on Thursday as investors took risk of the table ahead of the long weekend, and Fed rate hike fears pushed US yields sharply higher, spiking equity prices. The S&P 500 fell 1.21%, the rate-sensitive Nasdaq tumbled by 2.14%, while the Dow Jones retreated by 0.32%, backstopped by form oil prices. The same fears are permeating US markets today as futures trading commenced in Asia. S&P 500 and Dow futures are 0.50% lower, while Nasdaq futures have fallen by 0.90%.

In Asia, the ever-increasing sweep of covid lockdowns in China, and mixed data from the mainland have combined with weak US price action to push Asian markets lower. Japan’s Nikkei 225 has tumbled by 1.50%, while South Korea’s Kospi has edged just 0.20% lower, helped by a weakening currency.

Mainland China is deep in the red, with the Shanghai Composite down 0.80%, with narrower Shanghai 50 retreating by 1.65%. The CSI 300 has fallen by 0.95%. Hong Kong markets are closed. Although markets are in the red in China, it would not surprise me at all if we saw a mysterious rally towards the close as China’s “national team” steps into “smooth” flows.

Around Asia, Singapore is down by 0.65%, Kuala Lumpur is 0.30% lower, while Jakarta bucks the trend, climbing 0.50%. Taipei has fallen by 0.65%, with Bangkok unchanged and Manila rising by 0.25%.

European, Australian and New Zealand markets are closed today. A stronger US Dollar, lower US bond futures and weakening China data won’t give the perpetual FOMO-bulls of Wall Street any reason to sing. We also face substantial downside risks from the underway US earnings season now. Not so much with Q1 results, but rather the 2022 outlooks by the index heavyweights. Netflix will be the first test of the market’s resolve if its numbers and outlook darken.

US Dollar soars on Fed tightening nervous, weak Euro.

The Euro and Yen have tumbled since Thursday, and US bond yields have noticeably firmed once again as Fed rate hike fears increase the closer, we get to May’s FOMC. That has combined to punish the dollar index substantially higher, rising 0.50% to 100.33 on Thursday. The dollar index rose slightly on Friday and has gained 0.20% to 100.70 in Asia today. Resistance at 100.90 is within sight, and a move through 101.00 would signal more gains targeting the 2020 pandemic-panic highs at 103.00. Support is between 99.40 and 99.55.

The ECB policy decision, where it signalled little to no intention of increasing the pace of tightening or removing QE earlier, saw EUR/USD sold heavily on Thursday. EUR/USD traded between 1.0750 and 1.0900 before finally finishing 0.60% lower at 1.0830. The single currency eased slightly on Friday before moving 0.20% lower to 1.0785 in Asia today. The Euro is now facing a serious test of the multi-decade support line at 1.0800.  A daily close will increase bearish nerves, and a weekly close below it will be a powerful bearish signal. Initial targets are 1.0600 and 1.0300 and potentially a fall through 1.0000. Rallies in o 1.0950 should find plenty of sellers. Ukraine and energy fears and a dovish ECB make a sustainable rally in Euro challenging now. Only a sudden narrowing of the US/Core-Europe rate differential will likely change the outlook.

Sterling is holding above 1.3000 for now at 1.3030, as markets price in hikes by the BOE in May, and heavy EUR/GBP selling supports GBP/USD. Rallied have been limited to the 1.3150 regions, though, and the risk remains skewed towards a comprehensive failure of 1.3000, which should target 1.2700 initially. The Australian and New Zealand Dollars have both suffered heavy losses over the past few sessions, as risk aversion increases, and with both central banks perceived as being too slow to move on inflation. AUD/USD had fallen to 0.7360 and has support at 0.7300. NZD/USD has broken its uptrend line at 0.6815 last week, retreating to 0.6730 today. As risks of a hard landing increase, NZD/USD remains the more vulnerable. Failure of 0.6815 now could see NZD/USD fall all the way back to 0.6500 in the weeks ahead, with 0.50% priced into the next RBNZ meeting.

The widening US/Japan yield gap has seen USD/JPY soar over the past two sessions, reaching 126.65 this morning, taking out previous resistance at 125.80, which becomes initial support, followed by 125.00. Expect the official rhetoric from Tokyo to move up a notch this week now, although any dips are probably ones to buy. USD/JPY is now entirely at the mercy of the rate differential, and unless that reverses sharply, USD/JPY should target 128.00 eventually.

Asian currencies are weaker today, following the sharp move higher by US yields on Thursday, China’s economic nerves, and higher oil prices. USD/KRW has risen 0.45% to 1233.75 today, with USD/TWD climbing 0.35% and USD/JPY rising by 0.15%. Both USD/CNY and USD/CNH are also approaching one-year trendline resistance levels at 6.3770 and 6.3950 respectively. Daily closes above would signal another leg of Yuan weakness. As I have said ad nauseam previously, the slow pace of Asian monetary normalisation will present challenges to Asian FX as US rates keep moving higher. A slowing China will add to those concerns meaning we are likely to see Asia FX rates move lower over the coming quarter.

Libya nerves lift oil prices.

Oil prices are around 1.0% higher today in Asia as trading resumes after the Good Friday holiday. In thin trading, oil closed modestly higher on Thursday, and today, Brent crude has risen to $112.75 a barrel, and WTI to $108.00 a barrel. There are a few reasons behind today’s rise. OPEC reported that production rose only 57,000 bpd in March according to data, not even climbing by the agreed 253,000 bpd. The IEA said 3 million bpd of Russian production would be impacted by sanctions by May, and the Russian Interfax agency said Russian production slipped by 7.50% in the first half of March.

Finally, over the weekend, protestors appear to have shut down one small Libyan oil field, and completely disrupted loading at a major coastal terminal. Although only 75,000 bpd of actual production has been taken offline, with global supplies now so tight, even the most minor disruption is likely to have an outsized impact on prices.

With so much volatility in intraday oil prices, and extreme reactions to headline risks, technical levels have become rather irrelevant. Overall, therefore, I continue to expect that Brent will remain in a choppy $100.00 to $120.00 range, with WTI in a $95.00 to $115.00 range. Brent crude has further support at $96.00, and WTI at $93.00 a barrel.

Gold’s rally continues.

Gold booked a modest retreat on Thursday as US yields and the US Dollar climbed noticeably higher. Gold fell 0.22% to $1973.50 an ounce. In Asia today, gold has resumed its rally, despite the US Dollar also strengthening. Gold ahs risen by 0.54% to $1984.00 an ounce.

Gold’s price action, it must be acknowledged, remains constructive. It is managing to maintain gains on US Dollar strength, while also grinding higher even as US yields and the greenback both strengthen. Gold has initial resistance at $2000.00 an ounce, although I believe option-related selling there will be a strong initial barrier. If that is cleared, gold could gap higher to $2020.00 an ounce quite quickly and potentially, a retest of $2080.00 an ounce.

A retreat through $1960.00 and $1940.00 an ounce will signal a whipsaw move lower, chopping out the short-term money. Failure of $1915.00 will signal a retest of important support at $1880.00 and possibly $1800.00 an ounce

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Vice President, Yemi Osinbajo Seeks Collaboration With Vietnam on Agriculture and Technology

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yemi-osinbajo

Nigeria’s Vice President, Prof Yemi Osinbajo has sought collaboration with Vietnam in the areas of agriculture and technology. The vice president spoke in Vietnam at a bilateral meeting on Monday. 

During the meeting with his Vietnamese counterpart, Võ Thị Ánh Xuân, Osinbajo acknowledged both countries’ market potentials in the digital economy, telecommunications, and agriculture. 

Speaking at the Presidential Palace in Hanoi, Vice President Yemi Osinbajo noted that telecommunication penetration in Nigeria is one of the deepest in any developing country, stating that about 120 million Nigerians now use one telecom service or the other.

Calling for collaboration on digital economy, Osinbajo said “We have close to 120 million of our citizens who have put to use telecom equipment or devices. And also, broadband connectivity is vastly improved. We hope that by 2025, we will have broadband connectivity for all of our over 200 million people”. 

On the call for collaboration in the area of agriculture, the vice president noted that cashew production is an important area in which both counties can partner. 

He said ” Given the food crisis that the world faces today, and is likely to continue facing even in the coming years, I like to say that the way forward is for our countries to collaborate. For instance, establishing cashew processing plants in Nigeria”. 

Investors King understands that Vietnam is the world’s second-largest cashew processor with an annual processing capacity of 1.2 million tons representing up to 40 percent of the world’s total capacity. 

Speaking at the event, the Vietnamese Vice President commended Nigeria’s leadership role in the ECOWAS sub-region and Africa generally, especially in the peaceful resolution of disputes. 

She also commended Nigeria’s handling of the Covid 19 pandemic while reposing confidence in Nigeria’s ability to resolve challenges confronting the African continent and the West African region in particular. 

Conclusively, she added that her country would continue to work with Africa to meet its aspirations in agriculture, clean energy and digital penetration.

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Togo, Benin, and Niger Republic Owe Nigeria N4.1 Trillion in Electricity Debts

Nigeria currently supplies electricity to the Republic of Benin, Togo, and Niger through the Nigeria Bulk Electricity Trading, NBET Plc

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Electricity - Investors King

The House of Representatives on Public Account has disclosed that Nigeria’s neighbouring countries, Togo, Benin, and Niger Republic owe the country about N4.1 trillion in electricity bills.

The revelation was contained in a letter sent by the committee to the Managing Director of Nigeria Bulk Electricity Trading, NBET Plc, Dr. Nnaemeka Eweluka.

According to the letter which was signed by the Chairman of the Committee, Hon. Oluwole Oke, the Managing Director of NBET is expected to appear alongside Dr. Marilyn Amobi, who served as MD/CEO from 2016 to 2020. 

The house committee has accused the former MD, Amobi of non-rendition of the Audited Accounts for the years 2014, 2015, 2016, 2017, 2018, and 2019.

Investors King understands that Nigeria currently supplies electricity to the Republic of Benin, Togo, and Niger through the Nigeria Bulk Electricity Trading, NBET Plc. About 6 percent of the electricity generated in the country is sold to the neighboring countries. 

Meanwhile, according to the managing director of NBET, the federal government is working on structures that will enhance power distribution in the country, stating that most of the power-generating companies are currently located in the southern part of the country. 

“Most of the power generation companies are located within the south-south and south-west largely because of gas with one in the south-east, of course, we have the hydros in Niger state,” he said.

The MD added that Nigeria could generate up to a capacity of about 14,000 megawatts. He however noted that the distribution capacity is only between 4,000 to 5,000 megawatts per day.

Eweluka nonetheless sounded a note of hope, making references to the intervention projects that are currently ongoing such as the partnership with Simens.

“To address this gap between what is available and what the system can currently carry; there are a number of intervention projects that the government is currently pursuing, that include the presidential power initiatives in partnership with Siemens,” he concluded.

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No Plan to Increase Fuel Price; Says FG

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NNPC - Investors King

The Federal Government has stated that it has no plan to increase fuel price during the yuletide period.

This assurance is coming amid the nationwide fuel scarcity which has pushed the price of petrol above N250 in many retail stations.

Investors King learnt that fuel is being held for N250 per litre in Abuja and several other cities across the country while black marketers are charging between N400 and N450 per litre.

The scarcity and the high price of fuel are however becoming unbearable for many Nigerians, especially those who have reasons to embark on business travel for the December festivals.

According to the National Public Relations Officer, Independent Petroleum Marketers Association of Nigeria (IPMAN), Chief Ukadike Chinedu, most of the association members, who owned the bulk of the filling stations across the country, were now subjected to purchasing PMS at about N220/litre, which was why many outlets currently dispensed at about N250/litre and above.

He noted that the cost of the commodity has been on the rise due to its unavailability and other concerns in the sector. 

He added that the price of fuel could be sold from N350/litre to N400/litre before the end of the year. 

Meanwhile, a number of senior officials at the NNPC had stated that the subsidy was becoming too burdensome on the national oil company, as this was another reason for the scarcity of PMS.

According to a source who is familiar with the development as reported by Punch News, “How can we continue to import 60 million litres of petrol daily and keep subsidising it, while millions of litres are either diverted or cannot be accounted for? The burden is too much, as you rightly captured in that story”. 

Investors King understands that NNPC is the sole importer of petroleum into the country and it pays billions of naira every month to subsidise the product to N147 per litre. 

Reuters News reported that in August 2022, NNPC paid more than $1 billion as fuel subsidy while the federal government earmarked N3.6 trillion as fuel subsidy in the 2023 budget proposal. 

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