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Bad News from China

15 June 2020 by jbchevrel

During the Asian session, local CDS and other risky assets traded relatively poorly. APAC CDS indices were wider +2/+3. That was mainly on fears about an upsurge of COVID cases in Beijing. Half of Beijing’s districts reported new COVID cases today. There were 79 hospitalizations and 36 new infections in Beijing, which looks low vs 75,000 tests and 20m hab in total. As reported this weekend, the cluster seems linked to the largest seafood and vegetable market of the city. China has locked down the close neighborhoods. Data-wise, May activity indicators were a bit disappointing after April’s. China is still showing signs of recovery in May, but at a slower pace than in April. What is still true is that supply rebounds notably faster than demand. Industrial production in May rose by +4.4% YOY, lower than expectations (+5.0%). Fixed Asset investments rose +3.9% YOY was helped by higher property investment and higher infrastructure investment. On the consumer side, the data is still soft. May retail sales contracted -2.8% YOY, also worse than expected (-2.3%). The risk-off mood in London morning didn’t extend into the afternoon. In Europe, the Main quickly retraced tighter from 75 to almost 70 and CDX IG is currently aroung 80. The US are another closely-watched region regarding a possible resurgence of COVID. The fact that Kudlow reaffirmed that there would not be a second lock-down, stable data out of Florida (+2.3% in cases vs 7-day average of +2.4%), Kudlow announcement about hiring bonuses and Fed headlines have helped risky assets retrace their previous weakness. On top of that, the US will let companies to work with China's Huawei.