China's Q1 GDP growth surprises to upside

China recorded real GDP growth of 5.4% y/y in Q1, up from 5.0% the previous quarter and beating the predicted 5.2%. On a quarterly basis, growth was 1.2%, down from 1.6% previously. The outperformance suggests strong momentum in the Chinese economy through the start of the year, with stimulus measures starting to have a greater effect. January to March retail sales also came in better than expected at 4.6% y/y, compared to the predicted 4.3% while industrial production also outperformed, with ytd growth of 6.5%, beating the predicted 5.9%. However, the start of the US tariffs on Chinese goods will likely impact these measures over the subsequent period.

US President Donald Trump has announced restrictions on Nvidia’s chip exports to China. He has also launched a government probe into the need for new tariffs on critical minerals and the ‘impact of imports of these materials on America’s security and resilience.’ The executive order includes rare earth metals essential for high value technological sectors including defence and semiconductors.

There was a marked deterioration in the German ZEW expectations survey for April as it slipped to -14.0, down from 51.6 on the previous reading. By contrast the current situation component improved to -81.2, up from -87.6 in March. The collapse in business optimism reflects the uncertainty around tariff policies coming from the US government which has offset an earlier improvement in sentiment on the back of a planned ramp-up in government spending.

CPI inflation in Canada fell to 2.3% y/y in March, down from 2.6% in February and confounding predictions that it would accelerate to 2.7%. Core inflation was steady at 2.9%, in line with expectations, with lower prices at the pump as global crude prices fell contributing to the headline drop. Travel tours also saw lower prices as Canadian travel to the US weakened. The unexpected slowdown in inflation has left today’s Bank of Canada rate setting decision more in question. The bank had been expected to hold at 2.75% but the likelihood of a further cut has increased in light of the CPI data.

Today’s Economic Data and Events

10:00 UK CPI inflation, % y/y, March. Forecast: 2.7%

16:30 US retail sales, % m/m, March. Forecast: 1.3%

17:45 Bank of Canada interest rate decision. Forecast: 2.75%

Fixed Income

• USTs were little moved on the short end yesterday, with yields on the 2yr ending the day all but flat at 3.8229%. There was more movement on the long end with the 10yr yield falling 0.4bps to 4.330%, following the 11.5% drop the previous day.
• Mashreqbank priced USD 500m 5yr sukuk at +105, tighter than initial guidance of around 140.

FX

• The dollar index gained 0.6% yesterday, snapping its run of five consecutive falls. Gains came against the EUR in particular which closed down 0.6% against the greenback at 1.1282 with some weak survey data contributing to the weakness. GBP closed 0.3% higher against the USD at 1.3231.

Equities

• The two-day recovery rally in US stocks came to an end yesterday after restrictions on Nvidia’s selling to China were announced. The NASDAQ, the S&P 500, and the Dow Jones fell 0.1%, 0.2%, and 0.4% respectively.
• Locally, the DFM closed 0.4% higher while the ADX added 0.6%. Saudi Arabia’s Tadawul gained 0.2% on the day.

Commodities

• Oil prices fell yesterday after gaining Friday and Monday. Brent futures dropped 0.3% to USD 64.7/b while WTI was also down 0.3%, at USD 61.3/b.
• The IEA revised their oil demand growth forecast for 2025 by 310k b/d in their monthly oil market report, now expecting demand growth of just 730k b/d this year. Emerging Asia received the most notable downgrade as the IEA expects the effect of US tariffs on imports of Chinese goods to cause a material slowdown in China’s economy while the US also received a demand downgrade.
• The IEA expects considerable stockbuilds over the remainder of 2025 and into 2026 as demand growth weakens this year and improves modestly next year.