Bleak Chinese Activity Data, PBOC In/Action Knock Risk On Its Head

PBOC inaction on the MLF front & dismal economic activity data released out of China triggered risk-off flows across G10 FX space, despite the earlier positive reception of headlines surrounding Shanghai COVID-19 situation. Industrial output unexpectedly shrank in April, reflecting the cost of China's strict virus containment measures.

• The PBOC trimmed the mortgage rate for first home buyers to 4.4% over the weekend, but refrained from cutting the interest rate applied to its 1-Year MLF operations, disappointing some market participants.
• Weak bias in the yuan fixing was very marginal but ended a run of nine consecutive stronger than expected fixings.
• Spot USD/CNH reversed initial losses on disappointment with PBOC inaction/yuan fix and posted another upleg upon the release of soft Chinese activity data.
• It was a rags-to-riches session for the yen, which tops the G10 scoreboard as we type. Regional risk barometer AUD/JPY pulled back sharply after a brief look above the Y90.00 figure, as the Aussie dollar led losses in G10 FX space.
• The global data docket is very light during the remainder of the day, with central bank speak set to fill this gap. Comments are due from Fed's Williams, ECB's Villeroy, Lane & Panetta, BoE's Bailey, Ramsden, Haskel & Saunders as well as Riksbank's Ingves.