USD/CNY: Strong Q1 GDP growth, but challenges exist – MUFG

Macro data released last week showed the government policy support has been generating positive impact on the economy. China’s Q1 GDP delivered a strong growth of 5.4%yoy, above market expectations of 5.2%yoy. Meanwhile, overall March’s monthly macro data pointed to a growth acceleration from prior month or Jan-Feb period, including exports, retail sales, IP and FAI. For exports, the growth surged to 12.4%yoy from a weak average growth of 1.5%yoy in Jan-Feb period. We do not see the negative impacts from US tariffs yet, the exports to US grew by 9.1%yoy in March, an accelerated growth compared with Jan-Feb’s average of 1.1%yoy, MUFG's FX analysts report.

China’s growth surprises to the upside, but housing lags

"That said, housing recovery remained weak as major activities indicators all posted a negative growth in March whereas the home prices were still on decline. During the 13th State Council special study session held last week focusing on 'Strengthen expectation management and coordinate policy implementation and expectation guidance', Premier Li stressed the importance of policy timing, and the need to roll out policies early and promptly at critical times, to positively shape market expectations – hinting a change to a more proactive approach of the government. USD/CNY ended the week flat compared to previous week’s closing, at around 7.3000 level."

"The US-China tit-for-tat continued, with Trump administration imposing new export control on Nvidia’s H20 chips to China and planning to impose levies on Chinese-built and -owned ships docking at US ports whereas China reportedly asked airlines not to further take in Boeing jets deliveries and purchase any aircraft-related equipment and parts from US companies. That said, we think the prospect of US-China negotiation remains on the table, with Bloomberg reported that China wants to see a few steps from Trump administration before a talk."

"That includes showing more respect by controlling the disparaging remarks by Trump’s cabinet members, a more consistent US position, a willingness to address China’s concerns on US sanctions and Taiwan as well as US appointing a point person for negotiation talks who has Trump’s support. This comes as Bloomberg also reported that the Trump administration is trying to persuade other nations that come to US for tariffs negotiation to impose 'secondary tariffs' where the nation imposes tariffs on imports from countries that have a close tie with China."