We’re seeing relatively flat trade 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.
A mixed bag for the BoE but wages remain 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.