WORLDWIDE: HEADLINES
China’s PPI And CPI Rise Faster Than Expected In March
China’s factory inflation slowed but beat expectations in March, official data showed on Monday, as the country grapples with cost pressures caused by Russia’s invasion of Ukraine and persistent supply chain bottlenecks.
The producer price index (PPI) increased 8.3% year-on-year, according to data from the National Bureau of Statistics (NBS), easing from 8.8% growth in February but beating a forecast for a 7.9% rise in a Reuters poll.
While the year-on-year PPI rise was the slowest since April 2021, the monthly increase of 1.1% was the fastest pace in five months.
China’s consumer price index (CPI) inched up 1.5% year-on-year, the fastest pace in three months, after a gain of 0.9% in February and beating the 1.2% rise tipped by a Reuters poll.
The world’s second-largest economy came under downward pressure in March with renewed COVID outbreaks and the manufacturing and service sectors reporting declines in activity.
Authorities have unveiled policies to support the economy, including greater fiscal spending and reductions in income tax for small firms.
China’s cabinet on Wednesday vowed more support measures for consumption and investment.
Against a year ago, food prices fell 1.5%, compared with a 3.9% decline in February, resulting in a drop of 0.28 percentage points in headline CPI.
The still modest consumer inflation points to weak demand as the sentiment in consumption was dented by Beijing’s strict COVID control measures.
China reported 26,411 new asymptomatic cases for Sunday, more than 25,000 were in the financial hub of Shanghai, currently under a city-wide lockdown.
Iris Pang, chief economist for Greater China at ING, expects Shanghai’s economy will shrink 6% this month alone if the current lockdown persists, equalling a 2% gross domestic product decline for the whole of China.
Most analysts expect China’s central bank to lower borrowing costs, and cut reserve requirements for banks or lower interest rate to pump more cash into the economy.
Full coverage: REUTERS
War To Slash Ukraine’s GDP Output By Over 45%, World Bank Forecasts
Ukraine’s economic output will likely contract by a staggering 45.1% this year as Russia’s invasion has shuttered businesses, slashed exports and rendered economic activity impossible in large swaths of the country, the World Bank said on Sunday.
The World Bank also forecast Russia’s 2022 GDP output to fall 11.2% due to punishing financial sanctions imposed by the United States and its Western allies on Russia’s banks, state-owned enterprises and other institutions.
The World Bank’s “War in the Region” economic update said the Eastern Europe region, comprising Ukraine, Belarus and Moldova, is forecast to show a GDP contraction of 30.7% this year, due to shocks from the war and disruption of trade.
Growth in 2022 in the Central Europe region, comprising Bulgaria, Croatia, Hungary, Poland and Romania, will be cut to 3.5% from 4.7% previously due to the influx of refugees, higher commodity prices and deteriorating confidence hurting demand.
For Ukraine, the World Bank report estimates that over half of the country’s businesses are closed, while others are operating at well under normal capacity. The closure of Black Sea shipping from Ukraine has cut off some 90% of the country’s grain exports and half of its total exports.
The World Bank said the war has rendered economic activity impossible in many areas, and is disrupting agricultural planting and harvest operations.
Estimates of infrastructure damage exceeding $100 billion by early March – about two-thirds of Ukraine’s 2019 GDP – are well out of date “as the war has raged on and caused further damage.”
The bank said the 45.1% contraction estimate excludes the impact of physical infrastructure destruction, but said this would scar future economic output, along with the outflow of Ukrainian refugees to other countries.
The World Bank said the magnitude of Ukraine’s contraction is “subject to a high degree of uncertainty” over the war’s duration and intensity.
A downside scenario in the report, reflecting further commodity price shocks and a loss of financial market confidence triggered by an escalation of the war, could result in a 75% contraction in Ukraine’s GDP and a 20% contraction in Russia’s output.
Full coverage: REUTERS
WORLDWIDE: FINANCE/BUSINESS
Asia Wary Ahead Of ECB Meeting, U.S. Inflation Data
Asian shares slipped on Monday ahead of a week thronging with central bank meetings and U.S. inflation data, while the euro eked out a gain on relief the far right did not win the first round of the French presidential elections.
French leader Emmanuel Macron and challenger Marine Le Pen qualified on Sunday for what promises to be a tightly fought presidential election runoff on April 24.
A Le Pen victory would be a similar jolt as Britain’s Brexit vote to leave the European Union (EU). The result was close enough to leave the euro just a tick firmer at $1.0888, after an initial pop up to $1.0950.
The mood in equity markets was cautious, with MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) easing 0.1%. Japan’s Nikkei (.N225) dropped 0.6%, having shed 2.6% last week.
S&P 500 stock futures and Nasdaq futures both dipped 0.2% in early trade. Earnings season kicks off this week with JP Morgan, Wells Fargo, Citi, Goldman Sachs and Morgan Stanley all due to report.
Wall Street, so far, has fared surprisingly well in the face of a vicious selloff in bonds which saw 10-year Treasury yields surge 31 basis points last week to be last at 2.72%.
Markets have raced to price in the risk of ever-larger rate hikes from the Federal Reserve with futures implying rises of 50 basis points at both the May and June meetings.
BofA’s U.S. economist Ethan Harris now expects half-point hikes at each of the next three meetings and a cycle peak around 3.25-3.50%.
“If inflation looks like it is heading below 3%, then our current call should be hawkish enough,” Harris said in a note. “Conversely, if inflation gets stuck above 3% then the Fed will need to hike until growth drops close to zero, risking a recession.”
All of which underlines the importance of the March U.S. consumer price report on Tuesday where the median forecast is for a stratospheric rise of 1.2%, taking annual inflation to an eye-watering 8.5%.
Inflation will also be front and centre for the European Central Bank meeting on Thursday where the risk is for a hawkish slant to the statement.
“Inflation has jumped well above where the ECB thought it would be just one month ago,” noted analysts at TD Securities “We expect a dramatic shift from the ECB, with the announcement of an early end to QE in May and setting the groundwork, but not quite committing to, a June hike.”
Full coverage: REUTERS
Macron Lead Lends A Hand To The Euro Ahead Of ECB
The euro made a firm start to the week on investor relief that incumbent Emmanuel Macron led first-round voting in the French presidential election, while other moves were slight ahead of central bank meetings in Europe, Canada and New Zealand.
The euro briefly flickered as high as $1.0955 in thin early hours of the Asia session, before settling about 0.15% higher than Friday’s close at $1.0890. It was also firmer on sterling and the yen .
With 88% of votes counted, Macron garnered 27.41% and his far-right challenger Marine Le Pen was next with 24.9%.
They will contest a runoff vote on April 24. Macron’s lead gave some confidence to markets leery of Le Pen’s protectionism even if she no longer advocates ditching the euro, though gains were capped ahead of Thursday’s European Central Bank meeting.
“It’s a patchy bit of support,” said Westpac strategist Imre Speizer, as investors are also grappling with an ECB unlikely to sound as aggressive as Federal Reserve in heading off inflation.
“I think that biggest story of the two central banks being quite different is probably quite supportive of the U.S. dollar in the longer run,” he said.
The U.S. dollar index topped 100 for the first time in nearly two years on Friday, and was steady at 99.805 in morning trade. Against the Japanese currency the dollar was firm and bought 124.32 yen.
The ECB has been weighing rising consumer prices against pressure on growth from war in Ukraine. It is expected to give more details about a wind down in asset purchases on Thursday but may not give any further explicitly hawkish signals.
Central bank meetings are also due in Canada and New Zealand on Wednesday and interest rate swaps pricing indicates that traders see a more than 90% chance that each hikes rates by 50 basis points. ,
That could leave both currencies vulnerable if a smaller rate rise is delivered.
The New Zealand dollar wobbled 0.2% lower to $0.6836, while the Canadian dollar held at C$1.2583 per greenback.
Elsewhere, the Australian dollar also eased 0.2% to $0.7447 as gains in commodity currencies start to fade further with a retreat in export prices. Sterling held at $1.3026.
Full coverage: REUTERS
Oil Falls, Pressured By China Lockdowns, Reserves Release
Oil prices slipped $2 a barrel in early Asian trading on Monday, following a second straight weekly decline after world consumers announced plans to release a record volume of crude and oil products from strategic stocks and as China lockdowns continued.
Brent crude fell $2.04, or 2%, to $100.74 a barrel at 0139 GMT, while U.S. West Texas Intermediate crude lost $1.94, or 2%, to $96.32. Last week, Brent dropped 1.5% while U.S. oil slid 1%. For several weeks, the benchmarks have been at their most volatile since June 2020.
The market has been watching developments in China, where authorities have kept Shanghai, a city of 26 million people, locked down under its “zero tolerance” for COVID-19. China is the world’s biggest oil importer.
Member nations of the International Energy Agency (IEA) will release 60 million barrels over the next six months, with the United States matching that amount as part of its 180 million barrel release announced in March. The moves are aimed at offsetting a shortfall in Russian crude after Moscow was hit with heavy sanctions following its invasion of Ukraine.
“Oil is losing steam due to the joint efforts of the oil reserve release by U.S. and the IEA countries, along with weakening demand amid China extending lockdowns, where both of the manufacturing hubs, Shenyang and Shanghai, halted broad production,” CMC Markets analyst Tina Teng said.
The unprecedented release of 240 million barrels, equivalent to well over 1 million barrels per day, has helped cool prices and sharply narrowed backwardation in oil price curves, where prices in prompt months are higher than those in future months.
However, it is unclear whether that will fully offset the shortfall in Russian oil as exports continued, with India, lured by steep discounts, increasing imports.
On Monday, President Joe Biden will meet virtually with Indian Prime Minister Narendra Modi, the White House said, at a time when the United States has made it clear it does not want to see an uptick in Russian energy imports by India.
Russia’s production of oil and gas condensate fell to 10.52 million bpd for April 1-6 from a March average of 11.01 million bpd.
The oil reserves release could deter producers, including the Organization of the Petroleum Exporting Countries (OPEC) and U.S. shale producers, from accelerating output increases even with prices around $100 a barrel, ANZ Research analysts said in a note.
However, the OPEC+ group of oil exporting nations has not shown any inclination to increase its output targets more than the 400,000 barrels per day it has been adding monthly as part of a restoration of supply cuts.
Full coverage: REUTERS
