China's credit impulse weakens further

Could have important implications for various markets

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The latest Chinese money data show the 12-month credit impulse declined sharply in March. That sharp fall is partly due to the same base effects that will affect a lot of the data in the coming months, because China’s large credit releases during its lockdown are now dropping out of the calculation. The six-month credit impulse compares the most recent six months with the six months preceding it, and shows that credit has already been much weaker recently. In the Markets section below, we look at several relationships between the credit impulse and markets.

Macro

Unusually, annual money supply growth is lower in China than elsewhere.

In the year to January, the US federal government ran a deficit of $4,095 billion, or 19.0% of GDP.

Eurozone retail sales rose by 3.0% MoM in February. That took the annual rate to -2.8%. Consumer confidence suggests growth should improve.

Markets

China's 6-month credit impulse might be pointing to weaker commodity price growth, but there is some argument over whether the credit impulse will be as relevant given how the US economy is now recovering very strongly.

Traders largely agree with the above, given they are generally positioned more toward benefiting from higher commodity prices than is usual.

There are some signs of caution though; traders cut their net position in copper further last week.

China's 6-month credit impulse might also be pointing to a stronger USD.

And a weaker run for Chinese equities.

That would match some recent moves elsewhere. The main emerging market indices have all lost ground against the S&P 500 in the past month, with Turkey's BIST moving by the most.

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