China’s Q1 GDP grew 5.0% year-on-year, above the 4.8% consensus. Growth was supported by strong exports and a rebound in fixed asset investment.
Exports rose 14.7% year-on-year, linked to tariff reductions and demand for new-energy and AI-related goods. Fixed asset investment increased 1.7% year-on-year in Q1, after -12.8% in Q4-2025, as infrastructure and manufacturing improved alongside front-loaded fiscal spending.
Domestic Demand And Property Weakness
Retail sales showed stabilisation, with growth accelerating quarter-on-quarter. The housing market remained weak, with contractions in investment, construction and sales.
March data eased, attributed to Lunar New Year seasonality, base effects from 2025, and a possible early impact from the Middle East conflict. Retail sales growth slowed after the holiday period, and export growth cooled after stronger January–February figures tied to early shipments.
Policymakers were expected to discuss risks from a prolonged Middle East conflict at a late-April Politburo meeting. With solid Q1 growth and a flexible growth target, policy was expected to stay focused on measures already announced, with no near-term rate cuts anticipated.
Given the stronger-than-expected 5.0% Q1 GDP growth, we must adjust our expectations for significant new stimulus from Beijing. The government now has less incentive to cut interest rates or unleash major spending programs in the near term. This shift suggests that strategies betting on aggressive policy easing need to be reconsidered immediately.
For currency traders, this outlook provides support for the yuan. The People’s Bank of China has already demonstrated its commitment to stability by setting strong daily reference rates, keeping the USD/CNH pair largely below the 7.30 mark in recent weeks. We should therefore be cautious with long USD/CNH positions and could consider selling out-of-the-money call options to capitalize on a potentially range-bound currency.
In the equity markets, this creates a mixed picture that is ideal for options strategies. The strong economic data provides a floor for the market, but the lack of new stimulus will likely cap the upside, which we saw when the CSI 300 index recently stalled after its sharp rally from the lows of early 2026. This environment is favorable for selling volatility or setting up range-bound trades like iron condors on major indices.
Sector Divergence And Trade Positioning
We must also focus on the clear divergence between sectors. The continued strength in exports for new energy and AI-related goods means we should look at bullish positions, such as buying call spreads on leading electric vehicle and technology ETFs to play the targeted momentum. This contrasts sharply with the ongoing weakness in the property sector, where deep contractions in investment and sales persist.
The slump in housing continues to weigh on industrial commodities. We have seen iron ore futures drop below $100 per tonne, a level not seen since late 2025, reflecting the poor demand from construction. This signals that bearish derivative trades, such as buying puts on real estate developers or shorting industrial metal futures, remain a viable hedge against this specific pocket of economic weakness.
