China Suffers Worst Ever Quarterly GDP Reading

<h2>-6.8% vs -6.2% Expected 6% Previous</h2>
<p>The impact of the COVID-19 outbreak on the Chinese economy was laid bare today as the Chinese Q1 GDP figure marked the first contraction on record at -6.8%. The reading, which was worse than the -6.2% reading forecast, makes for devastating reading and raises very concerning questions over the prospects for a full recovery in Q2.</p>
<p>Chinese data has often drawn criticism from the West wit many accusations of government managing of the figure. Many independent analysts often point to the fact that Chinese data is likely worse than the official figures given, which makes this Q1 GDP reading even more concerning.</p>
<p>Still, Q1 was always expected to be a write-off given that much of the country was in lock-down over the quarter. However, with restrictions having been eased in many places and with factories returning to work, is there a hope that Q2 can see a strong recovery?</p>
<h2>China Getting Back To Work</h2>
<p>The American Chamber of Commerce in China reports that almost 25% of its companies there expect to be back to normal operations by the end of April with 40% of companies noting that investment levels will be kept in line with original projections for the period, noting no plans to cut jobs or scale back operations.</p>
<p>These stats echo the comments made by Vinesh Motwani, head of Silk Road Research who said that the data is firm is tracking suggests that the majority of businesses in China will be back to normal operations by May with demand set to return to the 60% – 100% region over that time-frame also.</p>
<h2>Chinese Exports Key To GDP Recovery</h2>
<p>While this is encouraging reading, the issue is that domestic demand is not the driving force for GDP. 40% of Chinese GDP comes from its exports sector and with the spread of the virus still wreaking havoc across the rest of the world, Chinese exports are unlikely to rebound as quickly as its factories will re-open.</p>
<p>The key to the pace of China’s recovery will, ultimately, be down to the pace of the recovery around the rest of the globe. If lock-downs end up being extended again in early May, this could create devastating economic consequences. Even if lock-downs are not extended, there is still a risk that economies will take some time to return to normal, with recessions forecast around the globe, creating a drag on Chinese exports. If this is the case, there I a very real chance that Chinese GDP could shrink over Q2 also, marking the first ever technical recession in China</p>
<p><strong>Technical View</strong></p>
<p><strong>USDCNH (Bullish above 7.0570)</strong></p>
<p>From a technical viewpoint. USDCNH broke down out of the recent triangle pattern and fell back below the 7.0570 level. However, the market found support at a retest of the broken bearish trend line and has since moved back above the 7.0570 level. With VWAP positive, while above here the bias remains bullish in the near term. The weekly R1 ( 7.0923) held as resistance this week, capping the rally, though further upside looks likely next week.</p>
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