China data rebounds

Monthly data shows China activity rebounded and exceeded expectation in March in a broad-based manner. After the bounce in manufacturing PMI previously, today’s report provides evidence that activity has bottomed out in China and the stimulus have started to kick in. With the better-than-expected aggregate credit in March as well, we think the current recovery will continue. Whilst the Chinese authorities will remain supportive to growth, the recovery in data decreases the need for further easing this year.

However eurozone slowdown continues

Eurozone composite Purchasing Manager indices continued to slow in April, driven by the services sector. Eurozone manufacturing PMI saw a modest pick-up some stabilisation but remained firmly in contraction territory. In particular, Germany manufacturing PMI continued to be weak and disappointed. We still see near-term weakness because Germany factory orders continued to fall. In the quarters ahead, we expect to see recovery because better Chinese data tends to lead eurozone activity. We note that the expectation indices of the IFO survey and ZEW survey have picked up, which historically is a good indicator of turning point in activity.

Surprisingly positive UK data despite Brexit uncertainty

UK data continued to defy Brexit blues and surprised to the upside this week. Retail sales rose strongly in March, and Q1 as a whole, despite downbeat consumer sentiment. While we think there is stockpiling, the fundamentals remain strong for consumers. The labour market remains tight and wage growth is at a cycle high of 3.4%. Also, UK inflation remains tamed, with headline inflation and core inflation remaining below expectation. Real wage growth is likely to provide a cushion to consumer spending. However, we still think that the prolonged Brexit uncertainty will do more harm than good to the economy.