Deceleration of activity and lower interest rates in China

China’s GDP growth declined to +4% yoy in the last quarter of 2021. This is a less sharp deceleration than expected, thanks in particular to the rebound in industrial activity (which accelerated to +4.3% yoy in December). The slowdown in retail sales (+1.7% yoy in December) and residential investment, on the other hand, shows that the pandemic and the real estate crisis are the two main negative elements weighing on activity. With inflation remaining very low, the central bank lowered its one-year lending rate from 2.95% to 2.85% for the first time since April 2020. China’s GDP growth, which exceeded 8% in 2021, is expected to decelerate to 5-5.5% this year.

The rise in bond yields continues (the US 10-year is at 1.78%) despite rather weak activity statistics in December in the US reflecting the impact of the pandemic: -1.9% for retail sales and -0.1% m/m for industrial production. Household confidence fell sharply in January, notably due to heightened inflationary fears, which lends further credibility to the scenario of a rate hike by the Fed in March. The market is now expecting almost four rate hikes in 2022 and we think that this is probably still too timid (see our monthly publication to be released this morning).

Martin Luther King Day in the US. The rather positive news from China should set the trend today.