PBOC pledges more support

• The Chinese central bank has pledged to increase its support the economy following the sharp dip in sentiment seen on Monday as concerns over the negative effect of prolonged lockdowns on the economy heightened. The PBOC announced that it would ‘step up the prudent monetary policy’s support to the real economy, especially for industries and small businesses hit hard by the pandemic’.  Previously the bank has reduced banks’ reserve limit in a bid to support liquidity. The outlook for China’s economy has darkened amidst a renewed rise in Covid-19 case numbers and the government’s adherence to a zero-Covid strategy. Mass testing of most of Beijing was announced yesterday, which has raised concerns that a city-wide lockdown will be introduced, following on from that of Shanghai.
• Germany’s IFO surveys surprised to the upside for April in data released yesterday, exceeding both expectations and the previous month’s readings. The current assessment survey came in at 97.2, up modestly from March’s 97.1, while the expectations measure rose from 84.9 to 86.7.  However, it should be noted that they both remain below the levels seen prior to the Ukraine conflict, to which Germany is especially exposed through its energy imports.
• Sharjah’s economy grew 4.8% last year according to a press release from WAM. Wholesale and retail trade was the driver of the growth, with the most rapid expansion rate (10.0%) and the largest share of total GDP (23.8%). This was followed by transport and storage (9.5% y/y) and accommodation/hospitality and food services (9.1%).
• Masdar, the UAE’s renewable power firm, has announced plans to develop a number of hydrogen energy projects in Egypt with capacity of 4 gigawatts by 2030. The projects will use solar and wind power to harness green hydrogen energy which they might then export.
• The IMF has addressed the crisis in Sri Lanka, saying that it has held fruitful talks with the country. The Fund has urged tighter monetary policy, tax hikes and flexible exchange rates, saying that ‘progress toward debt sustainability’ is required for IMF lending.

Today’s Economic Data and Events

16:30 US durable goods orders, % m/m, March. Forecast: 1.0%

18:00 US conference board consumer confidence, April. Forecast: 108.5

18:00 US new home sales, March. Forecast: 770,000

Fixed Income

• Benchmark government bonds rallied sharpy to start the week as anxiety over the spread of Covid-19 in China adds further downward risks to growth this year. The 2yr UST yield dropped to as low at 2.52% before paring some of those declines to close at 2.6257%, down 4bps. The 10yr fell to as low as 2.7584% before likewise edging higher at the end of the day to close at 2.8198%, down 8bps.
• European bond markets rallied strongly on growth fears even amid hawkish tones from central banks. Yields on the 10yr bund fell almost 14bps to close at 0.832% while the similar tenor French bond dropped 11bps to 1.308%. Gilts also rallied with 10yr yields down 12bps at 1.838%.
• Fitch improved their outlook on Saudi Aramco and Sabic from stable to positive while affirming both ratings at ‘A’.

FX

• As risk sentiment crumbled at the start of the week the dollar was well supported against all peers. EURUSD dropped more than 0.7% to close at 1.0713 even as pro-EU establishment Emmanuel Macron was reelected as president of France. In the UK, GBPUSD fell almost 0.8% to 1.2741 as data is increasingly showing signs of a considerable slowdown in the British economy. USDJPY managed to catch the haven bid, reversing some recent losses for the yen. The pair settled at 128.14, down 0.28%.
• Commodity currencies were weaker as a rule overnight with USDCAD up 0.2% to 1.2735, AUDUSD falling 0.9% to 0.7178 and NZD down 0.35% against the dollar to 0.6616.

Equities

• The sharp risk-off selling pressure that characterised the close of last week remained very much in play at the start of Monday. In Asia there were significant sell-offs to start off the day, with the Shanghai Composite losing -5.1% as concerns over the negative effects of lockdowns on growth mounted. The Nikkei and the Hang Seng lost -1.9% and -3.7% respectively. The losses continued as European markets opened, with the DAX, the CAC and the FTSE 100 losing 1.5%, 1.9% and 2.0% respectively, with even the increased post-election certainty in France insufficient to boost the market there.
• By contrast, US markets picked themselves up after the severe losses last week, with all three major indices closing higher. The S&P 500 (0.6%), the Dow Jones (0.7%) and the NASDAQ (1.3%) all gained, with the NASDAQ gaining from the news that Elon Musk’s bid to buy Twitter looks set to succeed.
• Locally, the DFM lost -0.8% and the ADX -0.9%. Despite yesterday’s losses, local markets remain relative outperformers globally this year, bolstered by planned IPOs. Yesterday, the head of Dubai’s utilities firm DEWA which successfully listed earlier this month said that there were no plans to issue any more stock.
• East Asian stocks are picking up this morning after China promised more support.

Commodities

• The threat of more widescale lockdowns in China helped to push oil and commodity prices considerably lower to start the week. Brent futures fell 4.1% to USD 102.32/b while WTI dropped 3.5% to USD 98.54/b. With risks to the demand outlook in focus for oil markets, prices are getting help moving lower by signs that disruptions to output in Libya may be easing in the coming days. Production there has fallen to around 500k b/d owing to political unrest blocking export terminals and major production sites.
• Metals prices fell sharply on the risk of Beijing following Shanghai with strict lockdown measures. Copper prices on the LME dropped 3% to less than USD 10,000/tonne for the first time since mid-March while aluminium fell almost 5% to USD 3,090/tonne. Precious metals were also off heavily with gold prices down 1.8% to USD 1,898/troy oz while silver fell 2%.

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