Update to BMO's Markets Wrap; Asia Trade, Including China

Last Updated: Monday, January 17, 2022 7:27 AM | MT Newswires

It is a risk-on session overseas Monday. Asia was mostly higher: the CSI 300 reversed course and headed higher after rate cuts and ended the day up 0.9%. The Nikkei climbed 0.7%, though the Hang Seng was off 0.7%. Europe was enjoying a broad-based rally, with all bourses up about 0.5%, on average (the FTSE 100 was leading the way). The USD index was unchanged, as about two thirds of the majors were moving higher against the greenback (NOK and CAD up top), while the EUR was flat ($1.14 one year ago, it was at $1.20) and the JPY and CHF were near the bottom. The GBP was also weaker ($1.3663) as power prices surged. (PM Johnson's troubles aren't helping.)

China's economy beat expectations in the fourth (and third) quarter. Real GDP rose 1.6% in Q4, or 4.0% y/y. This comes on the heels of an upwardly revised Q3 of +0.7% q/q (initially pegged at +0.2%). And, for all of 2021, that works out to an 8.1% increase, roughly in line with expectations and the fastest in a decade (or since 2011). BMO said the "solid" gain for 2021 partly reflects a bounceback from a weak 2020 domestically (now estimated at 2.2%), and the rest of the world rebounding from their worst years in history. However, BMO added, power shortages; problems plaguing the property sector; and, the resurgence in COVID cases, which brought in the zero-tolerance policy, are slowing economic activity down meaningfully, starting in the second half of the year. In December, retail sales grew just 1.7% y/y, about half the expected pace (or 12.5% YTD). At the end of H1, sales were up 24.8%, so the slowdown is clearly evident, it noted. Still, BMO said, that was a "startling" sales figure with clothing continuing to shrink, jewellery unclasped for the first time in 18 months, and autos declining for the sixth consecutive month. It added there was some good news, though. Industrial production climbed an above-expected 4.3% y/y in December (or 19.6% YTD), while fixed asset investment was up 4.9% for all of 2021.

BMO noted the government is "clearly concerned", enough to cut the 1-year medium-term lending facility (or MLF) by 10 bps to 2.85% overnight (before the release), the lowest level since 2020, the 7-day reverse repo rate by 10 bps to 2.10%, and inject more liquidity into financial markets. According to BMO, the economy likely slowed further in January, particularly with more cities locked down this month. And, with local governments trying to persuade citizens not to travel ahead of the Lunar New Year (February 1, Year of the Tiger), the economy will not see the typical bout of spending during the celebrations. BMO looks for about a 5.5% growth rate this year.

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