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China – credit growth slows despite better-than-expected data

China – credit growth slows despite better-than-expected data           

  • CNH: Chinese data - M2 growth slows notably in March, new loans beat market expectations, strong bond financing supports new TSF, but shadow banking activities remain depressed - M2 growth slides markedly by 0.7 ppt to 9.4%YoY in March, below consensus (Citi/market: 9.5%) as the PBoC keeps a cautious approach and withdraws liquidity from the market by RMB 30bn, in addition to the RMB300 bn withdrawal in January -February. Although total liquidity injection (adjusted by fiscal deposit release) remain roughly stable at RMB 455.4bn, the high base from last year (which soared by 1.7 ppt in last March) leads to a sharp slowdown in M2 growth. Meanwhile, new loans rebound from RMB 1.36trn in February to RMB 2.73trn, better than consensus for RMB 2.3trn. But, growth of loans outstanding still slows by 0.3 ppt to 12.6%YoY due to base effects. New TSF almost also doubles to RMB 3.34trn, but still lower than consensus for RMB 3.7trn and growth of TSF outstanding decelerates by 1 ppt to 12.3 %YoY.                

  • CNH: Slowing money and credit growth suggests PBoC policy exit has been underway – the  official release of PBoC’s quarterly monetary policy committee meeting deletes the phrase “to maintain continuity, stability and sustainability of monetary policy” & “no u-turn”, which has been mentioned repeatedly in key policy documents since last December. As a result, Citi analysts think that monetary policy tightening is underway and could tighten even faster than expected if the external growth outlook improves further. Citi analysts also think loan data outperformance in Q1 is unlikely to be repeated in coming months. Combined with an expected tightening of financial regulations, this is likely to exert extra pressure on China’s financial conditions though financial stability concerns will likely see a more graduated approach to policy tightening. 

  • CNH: Market implications of the tightening in China’s financial conditions - Citi analysts do not rule out the risk of an accelerated tightening in China’s monetary policy later in 2021 that together with the risk of a larger-than-expected fiscal consolidation could weigh more significantly on China’s demand growth in 2H’21. Citi analysts also warn that CNH is now unlikely to provide as much of a supportive positive cushion to EMFX over the next few quarters than seen over the final months of 2020 while also indicating that an acceleration in China’s monetary policy tightening could weigh more heavily on key commodity prices. This could potentially undermine sentiment in commodity currencies such as AUD.     


BoC’s Q1 lending survey (BoS) still signals underlying strength 

  • CAD: The BoC’s Business Outlook Survey indicator rises to 2.9 in Q1 from 1.3 in Q4 reflecting increases in expectations of future sales, investment and employment. Inflation expectations are also much higher in Q1, with input and output price expectations at the highest ever in the series. The survey does not capture the effect of the new 3rd wave of virus cases in Canada and subsequent lockdowns in April. Still, there are optimistic signs that activity is resilient and with the highest-ever share of firms also expecting faster price increases for both inputs and outputs, Citi analysts expect the BoC to proceed with tapering asset purchases next week.     


Week Ahead – key data/ events       

  • USD: CPI MoM – Citi: 0.6%, median: 0.5%, prior: 0.4%; CPI YoY – Citi: 2.7%, median: 2.5%, prior: 1.7%; PI ex Food, Energy MoM – Citi: 0.2%, median: 0.2%, prior: 0.1%; CPI ex Food, Energy YoY – Citi: 1.6%, median: 1.5%, prior: 1.3% - Citi analysts expect a solid increase of 0.23%MoM in core CPI in March with upside risk for many components. The team expects March to show the start of price gains for a number of components that have been held down by soft demand.       
  • USD: Retail Sales – Citi: 6.3%, median: 5.4%, prior: -3.0%; Retail Sales ex Auto – Citi: 4.9%, median: 4.8%, prior: -2.7%; Retail Sales ex Auto, Gas – Citi: 4.9%, median: 6.3%, prior: -3.3%; Retail Sales Control Group – Citi: 4.7%, median: 6.9%, prior: -3.5% - Citi analysts expect a strong rebound in retails in March with upside risks seen for many components in the retail control group. This could also help keep prices for various goods elevated after increases over the last year.
  • EUR: German ZEW Expectations, April Forecast: 75.0 Prior: 76.6; ZEW Current Assessment, Apr Forecast: -65.0 Prior: -61.0 - The 3rd wave of infections and prospect of longer and harder lockdowns could weigh down expectations and in particular the current assessment of ZEW in April.
  • NZD: RBNZ meeting: Citi cash rate forecast; +25bp, Previous; +25bp the MPC will likely continue to convey a dovish message given the unexpected negative Q4 2020 GDP result of -1.0% is a reminder that the path to complete recovery is not linear.  
  • AUD: Australian March Labor Force: Citi 35k, Previous; +88.7k, Citi unemployment rate forecast; 5.6%, Previous; 5.8% - improvements in February/ March suggest another positive month for jobs. April and May data however could exhibit volatility from the end to JobKeeper.  
  • SGD: MAS meeting -- With a negative output gap, job market slack and below historical average core CPI, Citi analysts expect MAS to keep band parameters unchanged. However, a slight upward tilt in outlook could bias MAS towards tolerating a slightly higher NEER within the band.  
  • CNH: China GDP (%YoY) 1Q: Citi 16.0, Consensus 18.9, Previous 6.5 – Citi analysts maintain their growth forecast for China at 16%YoY for 21Q1 with risks tilted to the upside. Manufacturing and services PMIs both accelerated more than expected in March, pointing to a strengthening in the growth momentum.             


This is an extract from the Daily Currency Update, dated April 13, 2021. Please approach a Citigold Relationship Manager if you would like more information.

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