Upbeat activity data confirms soft landing in Chinese economy

Data released on Thursday showed Chinese macro updates came in positive, with the GDP figures meeting expectations, while the industrial production, retail sales and fixed asset data outpacing estimates. Data was a clear confirmation that the Chinese economy is recovering and triggered renewed risk-on wave in the markets and supported the higher-yielding currencies.

China's Q1 GDP y/y 6.7% vs 6.7% expected; March Industrial Production y/y 6.8% vs 5.9% expected; March Fixed Assets (excluding rural) YTD y/y 10.7% vs 10.4% expected; March Retail Sales y/y 10.5% vs 10.4% last.

The sharp rise in PMI for March and is now confirmed in investment and industrial production data. Today's data for industrial production showed a rise of 0.6% m/m in March, which was the strongest increase since December 2014. This fits well with PMI manufacturing data for March from both Caixin and NBS, which both showed a robust increase in the same month.

In nominal terms, GDP growth actually picked up in Q1 from 6.0% to 7.1% as the GDP deflator turned positive jumping from -0.8% y/y to 0.4% y/y. However, there some doubts over the reliability of the numbers, so we cannot rely much on the GDP data. Instead, a combination of housing starts, industrial production and PMI was taken together and all converge to depict a clear picture of recovery.

"We continue to believe the worst is behind us and we believe growth in these sectors bottomed in Q1 and is likely to recover in the course of 2016," said Danske Bank in a note to clients.