Chinese trade hit by Covid restrictions

Chris Scicluna
Emily Nicol

Equities remain in retreat as inflation concerns persist
After last week’s roller-coaster, equities have started the week on the back foot amid continued inflation concerns, as the G7 leaders committed to ban Russian oil imports and the latest Chinese trade numbers illustrated the hit to activity from ongoing lockdowns. Japan’s TOPIX closed down just shy of 2.0% as wages declined again in real terms, while China’s CSI300 fell about 1% as Premier Li Keqiang flagged concerns about the labour market. US stock futures currently down a little less than 1% with European equivalents not much better.

Bond yields up again at the long end, shorter-dated yields largely down on risk aversion
Longer-dated UST yields up a little further at the long end (10Y up 1½bps to 3.14%) but lower at the short end (down 2bps to 2.71%) on risk aversion. Bunds doing likewise, but BTPs weaker across the curve despite ECB President Lagarde downplaying stagflation concerns in a weekend interview. In the Asia-Pacific, 10Y Aussie govvies were up almost 10bps to 3.56% while 10Y JGBs were steady just below the YCC ceiling at 0.24%.

Japanese real wages fall as underlying nominal pay moderates in March
Japanese labour earnings data came in a touch firmer than expected, with total wage growth unchanged at 1.2%Y/Y wages, the joint-strongest since May 2021. But this reflected stronger special bonus payments (10.4%Y/Y), while overtime earnings growth moderating (-2.4ppts to 2.5%Y/Y) to the softest for five months, and regular wage growth easing to 0.5%Y/Y, a three-month low. Adjusting for prices, real wage growth returned to negative territory (-0.2%Y/Y), while real regular wage growth (-0.8%Y/Y) recorded the fifth negative reading out of the past six months and the largest since September 2020.

Chinese trade hit by Covid restrictions, implying ongoing damage to global supply chains
Chinese exports slowed sharply last month as pandemic-related restrictions constrained output and impeded trade flows. In dollar terms, export values slowed 10.8ppts in April to just 3.9%Y/Y, a touch firmer than expected but still the softest since June 2020, suggesting ongoing disruption to global supply chains. Imports continued to flat-line, unchanged from a year earlier having been down 0.1%Y/Y in March. Given rising prices, the data imply significant declines in trade flows in volume terms. But with exports again faring better than imports, China’s trade surplus rose for a second successive month, up $3.7bn to $51.1bn, and more than $10bn higher than a year earlier. Exports to the US slowed 13ppts to be up 9.4%Y/Y. But shipments fell sharply to Hong Kong (-15.7%Y/Y), Japan (-9.4%Y/Y), Germany (-15.4%Y/Y) and the UK (-15.4%Y/Y). In CNY terms, export growth was softer-than-expected at 1.9%Y/Y with imports down 2.0%Y/Y.

Look to the week ahead:

Japanese spending in March likely boosted by lifting of restrictions
Looking ahead, the MIC’s household expenditure survey (tomorrow) and BoJ’s consumption activity index (Wednesday) might well receive a boost in March from the increased opportunities to spend on services following the relaxation of restrictions that month. But they will remain consistent with a contraction in household consumption in Q1. April’s economy watchers survey (Thursday) should point to further improvement in conditions in services at the start of Q2 but manufacturers likely less buoyant.

Chinese inflation set to remain low by international comparison on sluggish demand
China’s inflation (Wednesday) is expected to have edged higher as the recent drag from food price inflation eased somewhat. But inflation of non-food items is likely to remain sluggish as demand was weakened by renewed lockdowns. Headline CPI rate forecast to have risen 0.3ppt to 1.8%Y/Y, still low by international comparison, with PPI inflation expected to ease 0.5ppts to 7.8%Y/Y.

Euro area IP set to have declined in March at sharpest pace since the first Covid-19 wave
In the euro area, aggregate industrial production figures for March (Friday) are likely to report the steepest monthly drop in output (-2.0%M/M) since April 2020, underpinned by a marked decline in German production. This would still leave IP up a solid 1.0%Q/Q in Q1. Equivalent numbers from Ireland (today), Italy and the Netherlands (tomorrow) will offer further guidance. Euro area Sentix investor survey for May also due today.

Despite firm UK GDP growth in Q1, March data will be weak and deterioration lies ahead
In the UK, Thursday’s Q1 GDP report is expected to reveal only a modest easing in the pace of growth to 1.0%Q/Q from 1.3%Q/Q in Q4 as consumption was boosted by increased opportunities to spend on services. But we expect the monthly profile to report no growth whatsoever in March, following growth of just 0.1%M/M in February. And tomorrow’s BRC retail sales monitor seems bound to flag a significant hit to consumer spending at the start of Q2 as household real incomes fall sharply.

US CPI inflation to ease slightly from March’s four-decade high
All eyes in the US will be on April’s CPI and PPI inflation reports (Wednesday and Thursday respectively). Despite still rising food prices, given an easing in energy price pressures, Daiwa America’s research team expects consumer prices to have increased just 0.2%M/M (vs 1.2%M/M in March). This would leave the headline CPI rate down 0.4ppt on the month, albeit to a still-hefty 8.1%Y/Y. With prices of used cars and hotel stays also likely to have peaked, core inflation is also expected to have eased by around ½ppt from 6.5%Y/Y previously.

Plenty of central bank policy-makers in action
Plenty of policy-makers from the major central banks are in action this week, including BoE external MPC member Michael Saunders – who last week voted for a 50bps hike in Bank Rate – today to discuss current monetary policy challenges at the Resolution Foundation. ECB President Lagarde – among lots of other Governing Council members – is scheduled to speak mid-week. NY Fed President Williams kicks off the flow of Fed-speak tomorrow. 

Categories : 

Back to research list


This research report is produced by Daiwa Securities Co. Ltd., and/or its affiliates and is distributed by Daiwa Capital Markets Europe Limited in the European Union, Iceland, Liechtenstein, Norway and Switzerland. Daiwa Capital Markets Europe Limited is authorised and regulated by The Financial Conduct Authority and is a member of the London Stock Exchange and Eurex Exchange. Daiwa Capital Markets Europe Limited and its affiliates may, from time to time, to the extent permitted by law, participate or invest in other financing transactions with the issuers of the securities referred to herein (the “Securities”), perform services for or solicit business from such issuers, and/or have a position or effect transactions in the Securities or options thereof and/or may have acted as an underwriter during the past twelve months for the issuer of such securities. In addition, employees of Daiwa Capital Markets Europe Limited and its affiliates may have positions and effect transactions in such securities or options and may serve as Directors of such issuers. Daiwa Capital Markets Europe Limited may, to the extent permitted by applicable UK law and other applicable law or regulation, effect transactions in the Securities before this material is published to recipients.

This publication is intended for investors who are not Retail Clients in the United Kingdom within the meaning of the Rules of the FCA and should not therefore be distributed to such Retail Clients in the United Kingdom. Should you enter into investment business with Daiwa Capital Markets Europe’s affiliates outside the United Kingdom, we are obliged to advise that the protection afforded by the United Kingdom regulatory system may not apply; in particular, the benefits of the Financial Services Compensation Scheme may not be available.

Daiwa Capital Markets Europe Limited has in place organisational arrangements for the prevention and avoidance of conflicts of interest. Our conflict management policy is available at  /about-us/corporate-governance-regulatory. Regulatory disclosures of investment banking relationships are available at