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The economic recovery in China appears to be gaining traction as GDP expanded by a stronger-than-expected 4.5% in the first quarter of 2023, beating forecasts of 4.0%.

At a quarterly level, growth quickened to 2.2% from an upwardly revised 0.6% in the prior period.

However, the upbeat data didn't offer everything the markets wanted to hear as the reopening rebound was led mainly by consumers and private investment remained weak, raising question marks about the sustainability of the recovery.

Property investment was one of the soft spots as, despite a pickup in sales, new developments slumped in the three months to March.

The uneven recovery was further underlined by March figures on retail sales and industrial output, with the former soaring by 10.6% y/y but the latter managing only 3.9% y/y growth.

As impressive as the headline GDP number is, it’s doubtful if the government will be able to achieve its target of around 5% growth for the whole year, especially when policymakers seem reluctant to take any radical new measures.

Still, there were plenty of positives in the releases.

Strong consumption bodes well for countries like Australia that export to China and domestic exports are doing well too, jumping by 8.4% in Q1.

This helped currencies such as the Australian dollar, which is one of today's best performers.

The aussie was additionally lifted by the minutes of the RBA’s last policy meeting that disclosed that the decision in April to keep rates unchanged was a close call and that further rate hikes were still possible in the future.

However, equity markets in Asia didn’t receive much of a boost, with China's benchmark CSI 300 index closing up just 0.3% and shares in Hong Kong slipped.

In Europe, stocks have gotten off to a positive start on Tuesday in spite of bond yields in the region following US Treasury yields higher in recent days.

Many European indices have been outperforming their US peers this year as value stocks have come back into fashion in this higher interest rate environment.

And whilst the tech-heavy Nasdaq has fared better than the broader S&P 500, tech stocks are starting to feel the pressure of this latest uptick in yields as the 10-year Treasury yield is back around 3.60% near three-week highs.

The tech sector will be in focus this week as Netflix will kick off the Big Tech earnings later today. More major bank earnings are on the way too, including Bank of America and Goldman Sachs. But it is those of the mid-sized banks that matter more, which so far, have been mixed.

Yesterday, Charles Schwab reported stellar results while State Street missed by a wide margin.

Together with another regional rival, M&T Bank, the three saw deposit outflows of almost $60 billion amid the banking fallout.

Worries about tightening credit conditions, which have pushed up recession risks in the US, are likely to weigh on the S&P 500 for some time and it remains to be seen how much of a distraction the Q1 earnings season will be.

On a positive note, the S&P's volatility gauge – the VIX – has fallen to its lowest since January 2022 and there was an unexpected jump in the Empire State Manufacturing index in April. On the agenda for the US session today are building permits and housing starts for March, as well as CPI figures out of Canada.

In other data, UK employment increased by a much larger-than-expected 169k in the three months to February, while average earnings held steady at 5.9% versus forecasts of a drop.

The pound has reclaimed the $1.24 level on the back of the latest evidence that the UK jobs market remains very tight.

Yet, a rate hike by the Bank of England in May is not fully priced in amid predictions that tomorrow’s CPI report will show inflation declining below 10%.

As for the Fed, rate hike odds for May have been creeping up and are approaching 90%. What’s more, investors have now priced out one 25-bps rate cut in the second half of the year following very hawkish comments from the Fed’s Waller on Friday.

The US dollar rebounded by more than 1% as Fed officials doubled down on their commitment to bring inflation back down to 2%.

But the greenback is paring some of its gains today, with the yen and euro also recouping some losses.

Raffi Boyadjian is Lead Investment Analyst at XM.com. An original version of this article can be found here.