Morning Brief – Risk Off Returns

The market mood turned sour during the Asian session due to weak economic data from the Chinese economy, raising fears that the global economy is weakening.

China’s industrial production expanded by 5.6% year-on-year in April 2023, missing market forecasts of 10.9%, while accelerating from a 3.9% rise in March, and Retail Sales in China increased just 0.15 percent in March of 2023 over the previous month.

The natural losers were the risk trades. Asian stock markets turned lower and in FX we saw a notable move lower in risk-on Vs risk-off currencies such as AUDJPY and AUDUSD.

Looking at the Chinese data, it was the 12th straight month of growth in industrial output and the fastest pace since last September, mainly supported by both manufacturing and mining sectors, following the lift of the zero-COVID policy.

Considering the first four months of the year, industrial production advanced by 3.6% from the same period in 2022. In 2022, industrial production grew by 3.6%. 

China’s retail sales increased by 18.4% from the prior year in April 2023, missing market forecasts of 21.0% but sharply accelerating from a 10.6% gain in the prior month.

This was the third straight month of growth in retail trade and the strongest pace since March 2021, as sales grew further for most sectors. Considering the first four months of the year, retail trade rose by 8.5%.

The RBA minutes were also released earlier today, and the meeting minutes were not a lot clearer, the Bank is hawkish on inflation but reiterated again its concerns not to damage labour markets too badly as rates rise.

The Bank appealed for productivity gains. However, this is well outside its remit and influence, and the minutes added to the downside pressure on the Australian dollar intraday.

In US debt ceiling news, further talks between Biden and congressional leaders are scheduled for 3pm US Eastern time today, Tuesday, 16 May 2023.