UK GDP rises a modest 0.4%M/M in February

Chris Scicluna

Asian equity markets largely firmer today as Chinese import data bodes well for trading partner growth
As had been suggested by futures markets, Wall Street struggled to build on last week’s record close on Monday. But after trading in the red through most of the session, the S&P500 closed just fractionally lower while the Nasdaq slipped a modest 0.4%. The 10Y UST nudged a basis point higher in yield to 1.67% but the greenback was little changed. But despite the lack of direction from US markets, it has largely been a positive day for Asian bourses with investors perhaps taking some heart from much stronger-than-expected import data out of China, which perhaps help to explain recent stronger-than-expected PMI readings in a number of its major trading partners.

In Japan, the TOPIX increased just 0.2% but the Nikkei 225 rose a larger 0.7% on a quiet day for local data. Speaking in the Diet, the BoJ’s Kuroda noted the positive benefits of a weaker yen for Japan’s economy, but JGB yields moved slightly lower with rising local coronavirus cases posing near-term risks to the economy and to the feasibility of holding the Tokyo Olympics in July. In China, the CSI300 fell 0.2% as export growth in March proved, albeit not as strong as expected. Helpfully, Bloomberg reported that Thursday’s semi-annual Treasury report to Congress on trading partners’ FX policies would decline to name China as a currency manipulator. Less helpfully, investors were also confronted with further headlines concerning troubled state majority-owned distressed asset manager China Huarong, whose dollar bond spreads have blown out to as much as 1000bps as investors continue to await the company’s delayed 2020 annual report. In Australia, the ASX200 was little changed despite NAB’s latest business survey reporting the best business conditions on record, but bond yields moved higher as the survey also pointed to a clear lift in pricing pressures.

Chinese export growth strong but below consensus, while large import rebound brings cheer to trading partners; growth in China’s financing normalising
The focus in China and elsewhere in Asia today has been on China’s international trade report for March. In summary, annual export growth remained very strong – not least due to base effects associated with the first wave of the pandemic – even though growth was somewhat below market expectations. Of greater note was an even larger increase in imports, so that China’s trade surplus unexpectedly narrowed to a 13-month low of $13.8bn. While in isolation this result arithmetically weighs on calculations ahead of Friday’s GDP report, the strong import data bodes well for growth in China’s as-yet unreported domestic spending and will clearly have been welcomed by major trading partners.

Turning to the detail, in dollar terms, exports grew 30.6%Y/Y in March following a 6.9%Y/Y decline a year earlier (given the strengthening yuan, exports grew 20.7%Y/Y in local currency terms). Over Q1 as a whole, exports grew 49.0%YTD/Y, compared with a 13.6%YTD/Y decline a year earlier. Exports to the US increased 53.3%Y/Y in March, outstripping growth of 45.9%Y/Y in exports to the EU, 14.4%Y/Y to ASEAN nations and growth of just 7.6%Y/Y in exports to Japan. Meanwhile, China’s imports grew 38.1%Y/Y in March – up from 17.3%Y/Y in February, almost 14ppts above the consensus expectation and the fastest pace in four years. Over Q1 as a whole, imports grew 27.9%YTD/Y, compared with a 3.2%YTD/Y decline a year earlier. Imports from the US grew an especially substantial 75.1%Y/Y, causing China’s bilateral surplus with the US to decline to a 12-month low of $21.1bn. China’s imports from the EU increased 33.9%Y/Y, while imports from Japan grew 30.4%Y/Y and imports from ASEAN nations grew 38.4%Y/Y. Imports from Australia grew 47%Y/Y, probably not least due to a more than doubling of imports of iron ore.

In other news, late yesterday the PBoC released the monetary and credit aggregates for March. Aggregate financing grew CNY3.3trn – a little below consensus expectations and CNY1.8trn less than a year earlier when credit surged as China emerged from lockdown conditions. As a result, annual growth in the total stock of aggregate financing slowed to an 11-month low of 12.3%Y/Y from 13.3%Y/Y previously. Bank lending grew CNY2.7trn, which was slightly above consensus expectations but down from CNY2.9trn a year earlier. Slower annual growth was also evident in the broad monetary aggregates, with growth in M1 declining 0.3ppts to 7.1%Y/Y and growth in M2 declining 0.7ppts to 9.4%Y/Y – a rate that is broadly consistent with China’s target for nominal GDP growth this year.

Japan’s money supply peaking as base effects wane
A quiet day for Japanese data saw the BoJ release its monetary aggregates for March. Growth in M2 slowed 0.1ppt to 9.5%Y/Y, while growth in M3 was steady at 8.0%Y/Y. Both outcomes, which were slightly below consensus expectations, continued to benefit from base effects associated with last year’s BoJ pandemic response. M2 grew at a more moderate annualised pace of 4.8% in March, while growth in M3 fell to a 13-month low of 3.6%.

UK GDP in February posted modest growth close to expectations, exports to the EU post partial rebound
Broadly in line with expectations, UK GDP grew a modest 0.4%M/M in February following a revised drop of 2.2%M/M in January as pandemic containment measures remained in place. That left total economic output down a steep 7.8%Y/Y and 3.1% below October’s initial recovery peak. The service sector was little better than flat, with output up just 0.2%M/M benefiting from a modest pickup in wholesale and retail activity to be down 8.8%Y/Y and 3.1% below October’s level. But thanks to renewed growth in the auto sector, manufacturing production rose for the first time since November and by 1.3%M/M to be down 4.2%Y/Y and just 0.3% below October’s level. And growth of 1.6%M/M in construction output left it down a similar 4.3%Y/Y and unchanged from October. Further GDP growth of a similar pace in March would leave total economic output down about 2.0%Q/Q over Q1 as a whole. But surveys (such as the PMIs) suggested a firmer pickup in activity, with the reopening of schools likely to have provided an additional boost, so a somewhat shallower contraction (perhaps circa 1.5%Q/Q) seems more in order.

The UK’s February trade data reported a partial rebound in exports of goods to the EU. Having dropped £5.7bn (42.0%M/M) in January, goods exports to the EU grew by £3.7bn (46.6%M/M) in February thanks to stronger shipments of cars and pharmaceuticals. Imports of goods from the EU, excluding non-monetary gold and other precious metals, rose a softer £1.2bn (7.3%M/M) in February having dropped £6.7bn (29.7%M/M) in January. However, with growth in total imports (up £2.8bn and 8.8%M/M) exceeding that in exports (up £2.2bn and 9.9%M/M), the total underlying trade deficit widened by £0.5bn to £1.4bn.

ZEW survey to highlight euro area investor optimism while German political noise persists
In the euro area, today’s dataflow brings the German ZEW investor sentiment survey for April. Last month's survey exceeded expectations, with improvements in both the current assessment and expectations balances. And like last week’s Sentix survey, the April ZEW indices should point to improved perceptions of current conditions despite recent lockdown tightening as well as highly upbeat expectations of future conditions. Today will also bring the release of Italian industrial production numbers for February, which are expected to report a third successive month of positive growth, albeit of less than 1.0%M/M to be down roughly 2.0%Y/Y. In addition, while Chancellor Merkel’s cabinet is due to approve a new draft German lockdown law this morning before sending the text to the Bundestag, further light might be shone over the course of the day on the most likely identity of the CDU/CSU candidate (the CDU’s unpopular Laschet, or the CSU’s populist Soeder) to succeed her in September’s general election.

March CPI report the focus in the US today
The focus in the US today will be on the CPI inflation report for March, especially in light of last week’s surprisingly robust PPI figures. Daiwa America’s Chief Economist Mike Moran expects the headline CPI to post a solid increase of 0.4%M/M, not least due to a tenth consecutive increase in energy prices. Combined with the impact of base effects from last year’s pandemic-driven slump, this should lift annual inflation to around 2½%Y/Y. Following several months of no more than very modest increases, Mike expects that lower coronavirus cases and improved economic conditions will lead to a 0.2%M/M increase in the core CPI, lifting annual inflation by 0.2ppts to a still comparatively subdued 1.5%Y/Y. Aside from the CPI report, today will also bring the release of the NFIB small business optimism index for March and a number of speeches by Fed policymakers.

Australian business conditions hit record high in March; consumer confidence also firmer
The flow of extremely positive data continued in Australia today with the release of the NAB Business Survey for March. While the headline business confidence index fell 3pts to +15 – nonetheless about 10pts above the historic average – the more closely followed business conditions index increased 8pts to a record high of +25, with NAB commenting that this month’s improvement was broad-based across states and industries. Of particular note ahead of Thursday’s crucial Labour Force report, the employment index increased 7pts to a record +16 (a development that was also supported today by the ABS experimental measure of payroll jobs, which is now sitting 1.0% higher than in mid-March last year). Encouragingly, the exports index increased to its highest level in three years and the capex index recorded its first positive reading for 15 months. Also of note – and something to keep an eye on over coming months – was a sizeable lift in reported increases in both labour and other input costs, with firms also reporting the largest three-month increase in final product prices since 2008.

In other very positive news, ahead of tomorrow’s more widely followed Westpac monthly measure of consumer sentiment, the ANZ-Roy Morgan weekly measure of consumer confidence jumped 5.9% to the highest level since September 2019. Respondents were notably more upbeat about recent and prospective developments in their personal finances, as well as about the outlook for the economy. So after declining during the previous week, perceptions of buying conditions for major household items improved to sit just below January’s post-pandemic high.

Kiwi retail spending indicator rebounds a modest 0.9%M/M in March
According to Statistics New Zealand, the value of all non-cash spending at retail stores increased 0.9%M/M in March – a modest rebound considering that spending had declined 2.5%M/M in February, albeit with activity in early March continuing to be impacted by trading restrictions in Auckland. As a result, total retail spending fell 1.9%Q/Q in Q1, with the durables category the only one to record growth during the quarter. Compared with a year earlier spending grew a modest 0.6%Y/Y, weighed down by lower spending on consumables and food. Today’s report adds to the likelihood that the economy has posted a second consecutive modest decline in GDP in Q1 following the surprisingly large rebound in activity back in Q3.

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