Sat, May 26, 2018 @ 09:47 GMT
China’s macroeconomic data was mixed in April. Industrial production (IP) expanded +7% y/y, accelerating form +6% in March and consensus of +6.4%. Retail sales grew +9.4% y/y, easing from +10.1% in March. The market had anticipated a milder drop...
China’s National Bureau of Statistics reported that manufacturing PMI eased to 51.4 in April, from 51.5 a month ago. This, however, came in better than consensus of 51.3. The non-manufacturing improved to 54.8 in April from 54.6 in the...
People’s Bank of China (PBOC) announced to cut 100 bps in the reserve requirement ratio (RRR), effective from April 25, for large commercial banks, joint-stock banks, city commercial banks, rural commercial banks, and foreign banks. While it would be...
China’s macroeconomic data showed a mixed picture in March. Growth in industrial production (IP) eased to +6% y/y, compared with consensus of +6.9% and January- February’s +7.2%. The inflation report released last week also showed that headline CPI slowed markedly...
Speaking at the Boao Forum, sometimes known as "Asian Davos", Chinese President Xi Jinping announced four major areas of reform in opening up the market. First, the government would “significantly” ease market access, lowering restrictions for foreign investment in...
Over the past months, US trade policy has been a major cause of the wax and wane of the financial markets. The White House has triggered a number of investigations under the rarely used 1972 US trade law since...
China's economic data beat expectations in February. Headline CPI improved to +29% y/y, beating expectations of +2.5%, from January's +1.5%. On the economic activity barometers, industrial production grew +7.2% y/y in February, exceeding expectations of +6.3% and January's +6.2%....
China's official PMIs surprised to the downside in February. Manufacturing PMI dropped -1 point to 50.3 in February, while non-manufacturing PMI slipped -0.9 point to 54.4. The readings came in weaker than expectations of 52.1 and 55 respectively....
China’s official manufacturing PMI slipped -0.3 point to 51.3 in January, compared consensus of 51.5, as almost all sub-indices dropped during the month. The non-manufacturing PMI added +0.3 point to 55.3, beating expectations of 55, in January. Note that...
China's economic activities ended last year with a strong tone. GDP growth expanded +6.8% y/y in 4Q17, beating consensus of +6.7%.Serctor-wise, growth in the services sector accelerated to +8.3%, from +8% in the third quarter. By contrast, growth...
Two issues happened in China have roiled the market over the past two days. While the adjustment of renminbi fixing mechanism has resulted in a weaker currency, a news report citing an anonymous Chinese official as recommending to trim or halt purchases of US Treasuries has sent the longer-dated US Treasury (UST) yield higher, thus steepening the UST yield curve. While the former reveals that the Chinese government continues to actually intervene the FX market, putting its commitment to internationalize the currency in question, the latter is merely an act to maintain currency stability and a response as the US-China trade friction once again heats up.
Overshadowed by a series of central bank meetings last week, China's macroeconomic data were mildly disappointing. Yet, this should not affect the country's growth to reach its full-year growth target of +6.5%. Indeed, the PBOC's monetary tightening on December 14, closely following the Fed's rate hike, is a manifestation that the government remains confident over the economic outlook. The three-day Central Economic Work Conference (CEWC) beginning today (December 18) would reveal China's economic policy and the closely-watched GDP growth target for 2018. We expect the politburo might revise lower the target from this year's +6.5%, and/ or adopt more flexibility in it language.
The Caixin manufacturing PMI for China slipped to 50.8 in November, from 51 in October. The reading also missed expectations of 51. Looking into the details, production and new orders increased at modest rates, while purchasing costs rose sharply. However, confidence towards the business outlook dropped to joint-lowest on record. As the agency noted, the manufacturing sector remained stable for most of November, despite 'some signs of weakness'. It forecast that the economy would remain stable for 4Q17. While growth should improve this year, when compared with 2016, it should decelerate in 2018. By contrast, the official manufacturing PMI rose +0.2 point to 51.8 in November this also beat expectations of a drop to 51.5. Non- manufacturing PMI increased +0.5 point to 54.8 last month. Divergence between official and private PMIs is nothing new. Part of the reason for the divergence is that the official data focus on large enterprises, while Caixin's focus on SMEs. This interpretation appears contradicting this month. Indeed, the official report suggests that SME PMI improved, while that for large companies slipped -0.2 point to 52.9 in November.
Notwithstanding disappointing headlines, China's economic activities and credit conditions in October were a result of the government's regulatory tightening and the “neutral and prudent” monetary policy with a tighter bias. China's 10 year yields jumped to a 3-year high, approaching 4%, while 5-year yields breached 4% the first time in over 3 years, on Tuesday. The surge in yields can be attributed to a confluence of factors, including a selloff of sovereign bonds after softer-than-expected macroeconomic data and a reflection of tightened liquidity in the financial system. However, we believe the most critical factor is the rallies in US yields, on expectations of a December rate hike, and UK yields, amidst BOE's rate hike earlier this month.
China inflation, both upstream (PPI) and downstream (CPI), surprised to the upside in October. Headline CPI accelerated to +1.9% y/y, from +1.6% in September, beating consensus of +1.7%. Food deflation improved to -1.4% y/y in October, from September's -1.4%, whilst non-food price steadied at +2.4% y/y. Core CPI also steadied at +2.3% last month. PPI stayed unchanged at +6.9%, beating expectations of a slowdown to +6.9%. The set of data indicates gradual but smooth pass-through of inflation (from PPI to CPI), thanks to stable wage growth and improved capacity utilization. Headline CPI has a chance of rising to +2% by year-end and exceeding it in 2018. Note, however, that the upper bound of PBOC's inflation target is +3%.
The 19th National Congress of the Chinese Communist Party culminated with the announcement of the new Politburo Standing Committee (PSC) - the group of officials leading the country in the coming five year. Five out of seven members of the previous PSC were replaced, with only President Xi Jinping and Premier Li Keqiang staying in power. The five new members are Li Zhanshu, Wang Yang, Wang Huning, Zhao Leji and Han Zheng.
Predominantly the most important political event in China, the twice-in-a-decade National Congress of the Chinese Communist Party began on October 18. As a kick start, President Xi delivered a Party Work Report which reviewed the achievements in his first five years and outlined the challenges and goals for the next five years and beyond. Xi outlined his thoughts on the 'new era of socialism with Chinese characteristics' On the economic reform, he suggested further developments in the "advanced manufacturing industry", which includes medium and high end consumption, green and low carbon industry, sharing economy, modern logistics and human capital services. He has also pledged to deepen interest rate and exchange rate reforms, develop a comprehensive financial regulation system and reduce systematic financial risk. These are nothing new as the key aspects of the monetary and fiscal policies have already been lain down at the National Financial Work Conference in July.
China's trade surplus surprisingly narrowed to a 6-month low of US$28.5B in September, from US$42B a month ago. The market had anticipated a milder drop to US$39.5B. Growth in exports improved to 8.1% y/y from 5.5% in August, while growth imports accelerated significantly to +18.7% from July's +13.3%. Notwithstanding a disappointing headline, the report continued to paint a healthy picture on China's economic outlook. A stronger-than-expected imports growth underpinned domestic economic strength. Exports growth, despite missing consensus, still picked up from the same period last year. More importantly, a narrowing trade surplus could tame the US' complaint of China's currency manipulation. This should help the government maintain a stable and modestly strong renminbi as CCP's 19th national congress approaches.
PBOC announced to adopt targeted RRR cut in 2018 in some banks to 'encourage inclusive financing, such as credit support for small and micro-sized enterprises (SMEs), startups and agricultural production, as well as small business owners, impoverished groups and students. All of the large and medium sized commercial banks, 90% of municipal commercial banks, and 95% of agriculture commercial banks are eligible for this measure. Banks with inclusive financing exposure higher than 1.5% of loans would be eligible for 50 bps RRR cut from benchmark ratios. Banks with exposure higher than 10% would qualify for additional 100 bps RRR cut. We believe the move is a fine-tuning of PBOC's other tightening measures, rather than a shift towards a loosening monetary stance. Indeed, by choosing a targeted RRR cut, instead of a broad-based cut or a rate reduction, the central bank is sending a signal that it has not changed the monetary policy stance which remains 'prudent and neutral”.
August data further evidenced that China's economic growth has peaked in the first quarter. Following the sharper-than-expected slowdown in growth in July, the latest set of macroeconomic data also surprised to the downside. The moderation was a result of the government's tighter monetary policy in an attempt to curb excessive investment in certain areas, such as real estate. Renminbi's appreciation against US dollar since the beginning of the year probably has weighed on exports. This leads the PBOC to loosen capital control which has been adopted over the past years to prevent renminbi from severe depreciation.