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Mixed data for China, UK sees markets tread water in Europe

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By Craig Erlam  

We’re seeing relatively flat trading again on Tuesday amid mixed economic data from China overnight.

The world’s second-largest economy grew by 4.5% in the first quarter as it emerged from zero-Covid restrictions to join the rest of the world in living with the disease. The transition was never likely to be perfectly smooth but much of the data we’ve seen in recent months suggests it’s been relatively successful.

But the data on Tuesday also highlights how uneven the recovery has been.

The consumer has been doing a lot of the heavy lifting and it was this outperformance in March – retail sales rose by 10.6%, smashing expectations – that enabled the large beat in the GDP data.

The fixed asset investment and industrial production figures were less inspiring, both comfortably falling short of expectations and highlighting the challenges facing the economy this year.

It’s not just the pandemic that the country is bouncing back from, confidence in the property market has been severely undermined and it will take time to recover.

Mixed bag for BoE, wages a concern

The UK jobs report was also a mixed bag, with wage growth remaining stubbornly high – and with upward revisions – but unemployment unexpectedly ticking higher to 3.8%.

The BoE will no doubt be frustrated at the lack of progress on wages – particularly excluding bonuses – but if the move higher in unemployment is sustained, the additional slack in the labour market may give them confidence that they will come down.

Of course, with inflation still above 10%, the case for pausing rate hikes is already extremely challenging and markets strongly expect another 25 basis points next month and maybe one more before the end of the year.

Can oil break above 5-month range?

Oil continues to tread water around the five-month highs, an area it has failed to surpass in the aftermath of the latest OPEC+ output cut. Rather than propel the price towards $100 as some feared (it could still happen, of course), the decision appears to have just moved the price back to previous ranges that the cartel was seemingly comfortable with.

The next step may depend on global growth and whether the economy can weather the recent storm, particularly in the US where tighter credit could significantly weigh on growth for the rest of the year.

For now, $88 still looks like an interesting level of resistance in Brent, with $83.50 potentially one to watch below after the gap open a couple of weeks ago.

Gold fails to hit new highs

Gold is trading around $2,000 Tuesday morning after giving back some gains in recent sessions.

The yellow metal came close to record highs late last week but didn’t quite have the legs to properly test it. That may still come, but it seems we’re now seeing some profit-taking, which coincides with yields creeping higher and interest rate expectations doing similar.

Markets still haven’t fully recovered from the banking turmoil, especially in the US, and that could continue to support gold if investors remain of the view that the scarring from the crisis will lead to tighter credit conditions.

 

Craig Erlam is Senior Market Analyst, UK & EMEA at OANDA

Opinions are the author’s, not necessarily that of OANDA Global Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. Losses can exceed investments.