MBS Live Day Ahead: Bonds Successfully Predict Chinese Rebound

Over the years, there have been more times than I can count where the financial media has mistakenly assigned some significance to news or events in China.  The past week has had its moments in that regard, but this time around, the Chinese economy is undoubtedly in play as a market mover.  Either that, or it's being used as cover for traders to strategically back-fill the post-Fed rally that begin on March 20th--something that was ultimately accomplished this morning.

Overnight economic data in China was this week's focus in terms of potential market movers.  Chinese GDP came out at 6.4 vs 6.3 forecast (6.4 previously).  Industrial output rose by 8.5% versus a 5.9% forecast. And Retail Sales ticked up to 8.7% from 8.2%.  All of the above data points were released at 10pm ET, and had obvious effects on stocks and bonds.

Notably absent from the chart above is some indicator for Chinese markets (i.e. Chinese stocks or bonds).  Interestingly enough, we're not seeing the same reaction there, but that's actually not a total surprise.  We'll talk about why that is on MBS Live this morning, but the short version is that US markets aren't so much trading the evolution of the Chinese economy as they are trading the Fed's expected reaction to it.