Aussie Dived On China GDP, But Markets Steady Elsewhere: April 15, 2012

China data was the major focus in Asian session today. China's Q1 GDP rose less than expected by 8.1% yoy versus consensus of 8.3%. However, except for the Aussie dollar, reactions in financial markets were generally muted since other economic data from China suggests that while growth has slowed, there were signs of stabilization. Asian equities are broadly higher as also boosted by North Korea's failed rocket launch. Dollar pared some of last week's loss against other major currencies but the strength of recovery is so far weak.

The 8.3% yoy growth in China's Q1 GDP was worse than consensus of 8.3% and Q4's 8.9%. That's indeed the slowest growth since Q1 of 2009. But bear in mind that the official target this year is 7.5% and thus, today's data isn't too much of a surprise. Meanwhile, other March data were solid where industrial production grew 11.9% yoy, retail sales rose 15.2% yoy fixed investments rose 20.9% yoy.

Released Thursday, China’s lending surged to RMB 1.01T, the highest level in 14 months. Growth in M2 also rebounded to 13.4%, suggesting that Chinese economic activity in March probably picked up again due to the central bank’s open market operations. After all, more easing is expected by China ahead and reserve ratio would be the main tool rather than interest rates. There are speculations that China could lower the RRR by another 100 basis points in Q2.

Elsewhere, euro remains steady against dollar and yen today in spite of the mild retreat and the common currency is maintaining this week's gain. There was talk that ECB would either restart the SMP bond buying or offer another 3-year LTRO to prevent the bond markets from going back to a crisis situation.

Both camps have their arguments. Some argued that reviving the SMP would be unwelcome among many ECB board members as firstly, it's a dramatic U-turn after Draghi ruled out such a move a week ago. Also, it will be an admission that the ECB LTRO failed. But SMP does have its merits of being easy to restart, and being much more targeted. After all, the euro and peripheral bonds are stabilized by such expectations for near term.

Friday saw a major focus on inflation data. UK PPI input was expected to slow to 4.8% yoy in March with output PPI slowed to 3.5% yoy. US CPI was expected to drop to 2.6% yoy in March with core CPI unchanged at 2.2%. US U of Michigan sentiment was also set to be released.