19 April 2021
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Annual GDP growth in China reached 18.3 percent in Q1

By Daniel Richards

  • China’s economy grew 18.3% y/y in Q1 off a low annual base, although the q/q growth rate slowed sharply to just 0.6% from (an upwardly revised) 3.2% q/q in Q4, well below consensus forecasts of 1.4% q/q growth.  Weakness in the services sectors appeared to be a drag on Q1 growth, as an increase in coronavirus cases led to travel restrictions over the Chinese New Year.  Manufacturing output also appears to be peaking after a strong rebound last year.  Industrial production in the year to March was up 24.5% y/y compared with 35.1% y/y in the first two months of this year. Encouragingly however, retail sales in March rose by a faster than expected 34.2% y/y.  Overall, China’s annual growth rate is likely to slow in the coming quarters but remains on track to reach the government’s target of 6%.
  • US economic data at the end of last week was largely better than expected, with initial jobless claims falling to the lowest since March 2020 at 576k. Retail sales surged 9.8% m/m in March as stimulus cheques and reopening of services boosted household spending last month. Housing starts also rebounded 19.4% m/m after bad weather led to a drop in February.  However, industrial production rose by a smaller than expected 1.4% m/m in March, possibly reflecting global supply shortages affecting some sectors. The University of Michigan consumer sentiment index improved only slightly to 86.5 in April as households remain cautious about the outlook. The survey also suggested that household inflation expectations remain well anchored over the longer term, at 2.7% over 5-10 years. 
  • In his first MPC meeting in charge at the TCMB, newly installed Governor Sahap Kavcioglu kept the benchmark one-week repo on hold at 19.00%, as had been widely anticipated. Of more note was the removal of a pledge that the tight monetary policy stance would ‘be maintained decisively’, giving rise to further speculation that the central bank will cut rates as soon as it judges it can do so. Kaviolgu has previously vocally supported President Erdogan’s belief that high interest rates fuel inflation, but any rate cut while inflation continues to trend higher will likely see renewed pressure on the lira.
  • In Dubai, data from ASTECO showed residential real estate prices in freehold areas rising q/q for both apartments and villas in Q1 21, with villa prices rising on an annual basis for the first time since 2014.  The rise in price likely reflects increased demand for larger units as more people work from home and children learn online, as well as greater affordability.   Rents for larger apartments and villas in freehold areas have also increased on an annual basis in Q1 2021.
  • Dubai CPI declined -3.9% y/y in March, but was unchanged m/m. Lower food, housing and miscellaneous goods and services prices were offset by increased transport costs, which rose 4.9% m/m on fuel price hikes, as well as higher prices for recreation & culture.
  • Saudi inflation slowed to 5.0% y/y in March from 5.3% in February as food, housing, clothing, household furnishing and miscellaneous goods and services prices declined m/m last month.  We expect inflation to slow sharply in H2 2021 as the VAT hike from last July falls into the base.
  • Oman implemented a 5% VAT on Friday, which the authorities estimate will raise OMR 400mn per year. The list of exempt items was expanded from 93 to 488 basic items including most food items.
  • The focus this week will likely be the ECB meeting (Thursday), UK employment and inflation data and flash PMIs for major economies (Friday).

Today’s Economic Data and Events

08:30 JN industrial production

Fixed income

  • US Treasuries managed to rally a second week running even as economic data continues to show the US economy in firm recovery from the Covid-19 pandemic. A broad index of USTs added almost 0.4%, similar to its gain a week earlier, with the long end of the curve showing most of the gains. Yields on 2yr USTs held onto levels around 0.16% for much of the week while 10yr UST yields fell almost 8bps to 1.5798% at the close, although at one point did move as low at 1.527%.
  • High-yield and emerging market USD bonds also gained last week as a risk-on tone permeated markets to a degree, despite the rally in treasuries. Performance in local currency EM bonds was mixed though. South African yields fell around 24bps on the 10yr government bond to just over 9%. In Turkey, the 10yr TRY yield fell 20bps as the CBRT held rates steady at the first decision for new governor Sahap Kavcioglu. In India though yields were higher by 7bps as the country grapples with an escalating Covid-19 infection rate. The country has recorded more than 200k daily new cases over the last few days as the pace of infection appears exponential.
  • Central bank action this week will see decisions from Indonesia, Canada and the ECB where all are expected to keep rates and policy unchanged. Russia’s central bank also meets but market expectations are for a 25bps hike to policy rates.


  • Lower UST yields did the US dollar no favours and it fell against most peers for a second week running. The DXY index fell five days running to settle at 91.56, down 0.7% on the week. The dollar’s negative correlation with risk assets has strengthened in recent weeks after a period of both the dollar and US equity markets moving higher in tandem.
  • EURUSD and USDJPY were the main agents of dollar weakness with the single currency rising 0.7% to 1.1983 at the end of the week and the yen closing solidly below 109 at the end of trading, a decline of 0.8% for USDJPY. Sterling was another notable outperformer with cable rising 0.9% to 1.3832 even as anxiety mounts that the UK could see another uptick in Covid-19 cases following the easing of restrictions recently.
  • Commodity currencies were generally stronger against the dollar although USDCAD was a notable underperformer, with the loonie strengthening just 0.2% against the greenback. Both AUD and NZD rallied around 1.5% against the dollar.
  • Emerging market currencies were stronger against the USD nearly as a rule. USDTRY fell by more than 1.3% over the week to 8.0656 with the market likely relieved that the CBRT held rates rather than cut at its meeting. USDZAR closed at 14.31, down 2%, while the INR managed to rally despite the rising pace of Covid-19 infections in India, settling at 74.355, down 0.5% for USDINR.  


  • Strong data at the close of the week, with a raft of US indicators showing a strong performance, helped boost global equity markets on Friday and most major indices reported w/w gains. In the US it was the S&P 500 which led the pack, with a w/w gain of 1.4%, followed by the Dow Jones and the NASDAQ which closed up 1.2% and 1.1% respectively. Both the S&P 500 and the Dow Jones closed at record highs on Friday as a result, but the NASDAQ remains just off its record high set in February.
  • There were also strong gains in European equity markets last week, as the composite STOXX 600 closed 1.2% higher. The outperformer here was the CAC which gained 1.9%, followed by the DAX and the FTSE 100 (1.5%).
  • Things were less positive in Asia, with Indian equity markets in particular trending lower as the country contended with a surge in Covid-19 cases and renewed lockdowns in economically important regions. The NIFTY lost -1.7% w/w and the SENSEX -1.8%. Meanwhile the Hang Seng, the Nikkei and the Shanghai Composite also closed lower (-0.2%, -0.3% and -0.7%
  • Within the region the DFM ended the week 2.1% higher and the Tadawul 0.9%. The EGX 30 lost -1.6% however.


  • Oil prices managed their strongest weekly gain in weeks with major benchmarks up substantially. Brent futures rallied 6.1% to USD 66.77/b over the week, WTI added 6.4% to USD 63.13/b while Murban gained 6.1% to close at USD 65.50/b. Demand forecast upgrades from both the IEA and OPEC helped to build a more positive outlook for crude while supportive data from the US and China has also helped.
  • Market structures in the oil market also gained with backwardations in 1-6 month spreads for both Brent and WTI gaining. The IEA’s oil market report would imply a considerable shortage in oil supply in H2 2021 should OPEC+ stick to the production levels it expects to hit by the end of July, setting up the stage for more support for oil prices.
  • At the same time, though, the recovery in US drilling activity remains on course. Seven additional rigs were added last week, taking the total to 344 active rigs, just 34 fewer than the same period last year and recovering a full third of all rigs lost during the slump caused by the Covid-19 pandemic.  

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Written By

Daniel Richards Senior Economist

Edward Bell Head of Market Economics

Khatija Haque Head of Research & Chief Economist

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