Mon, Mar 18, 2019 @ 18:14 GMT
China’s headline CPI rose to a 6-month high of +2.3% y/y in August, up from +2.1% a month ago. However, the increase almost entirely came from food prices which jumped to +1.7%, from +0.5% in the prior month. Taking...
July’s data showed that China’s economic growth continued to decelerate although the government has loosened its policy. All key economic activity indicators missed expectations for the month. Industrial production grew +6% y/y, after a sharp slowdown in June and missing...
Yesterday, PBOC announced a -50 bps reduction in reserve requirement ratio (RRR) for commercial banks. The move, effective from July 5, aims at easing the tightening in credit condition with the injection of about RMB 700B of liquidity to...
USDCNY continues to recover after the pair slumped to the lowest level since December 2015 last Friday. The rebound, long-awaited as the broad-based USD weakness has caused the pair to decline over the past 4 months, is facilitated by PBOC’s announcement to remove the requirement for banks to hold the equivalent of 20% of clients' FX forward positions as reserve for a year at 0% interest. For more than a decade, China has been implementing reforms in its currency, with the ultimate goal of achieving a floating exchange rate regime and convertibility for renminbi – a movement widely described as renminbi internationalization. However, this report seeks to explain that the government has only been moving back and forth, without making significant progress in transforming renminbi into a market-oriented exchange rate.
China’s economic growth decelerated further in 3Q18, as the impacts of restraining infrastructure investment and trade war surfaced. GDP growth moderated to +6.5% y/y in the third quarter, the slowest since the first quarter of 2009. Growth came in...
The latest PMI data added further evidence that China’s economy is in bad shape. Trade war with the US has not only weakened trade, but also domestic demand. The job market has also deteriorated, suggesting further stimulus is needed...
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.
China's trade and inflation data surprised to the downside in July, likely drive by the government's targeted tightening monetary policy. GDP growth is expected to slow in second half of the year. Yet, given the strong readings in the first half, with the economy expanding +6.9% in both the first and second quarters, GDP growth should be able to meet government's target of “around +6.5%”. We believe the government would continue its tightening monetary policy in order to prevent and resolve systematic risks, and to curb excessive strength in property prices. Meanwhile, as ultra accommodative monetary policies across major central banks are coming to an end, with the Fed and BOC raising interest rates, while ECB will begin discussing reduction of asset purchases, it would be detrimental to the renminbi if the central bank pledges to maintain monetary easing. This would exacerbate capital outflow from China.
Weakness in renminbi has accelerated recently, driven by Donald Trump’s new list of tariff against China announced in mid-June, PBOC’s RRR cut and the jump in risk aversion over the Chinese market. USDCNY’s rally of more than +4% over...
The official manufacturing PMI data, published by the National Bureau of Statistics, slipped -0.3 point to 49.2 in February. The market had anticipated no change from the prior month. This shows that large corporations in the sector, staying in...
The latest set of macroeconomic data in China was mixed. Retail sales grew +8.6% y/y in October, weaker than consensus of, and September's +9.2%. Automobile sales, contributing 10% to retail sales, declined -11.7% in October, marking the first annual ...
The set of June data released so far has pointed to a steady growth trend in China, the world's second largest economy. Released earlier in the week, headline CPI stayed unchanged at +1.5% y/y in June, shy of consensus of +1.6%. Persistently soft food price (on deflation) continued to put downward pressure on the headline reading. For instance, pork plummeted -16.7 and egg price fell -9.3%.PPI, upstream price levels, steadied at +5.5% in June, in line with expectations. Subdued inflation offers the government room to maintain its targeted tightening measures, focusing on cracking down overheating asset prices. Yet, soft PPI suggested that growth in industrial profits would be limited.
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 official PMI report (focusing on big companies) signals improvement in both manufacturing and services sector. The Caixin/ Markit data (focusing on SMEs) suggest both sectors remained resilient in May. We believe the government’s policy shift, to prioritize over...
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...
The official manufacturing PMI for China climbed +0.5 point higher to 51.7 in November, another month of big increase after October's 0.8-point gain. The non-manufacturing PMI (services and construction activities) soared +0.7 point to 54.7. The services PMI added +1.1 points to 53.7, while the construction PMI slipped -1.4 points to 61.4. The Caixin/Markit version of manufacturing PMI, by contrast, fell to 50.9 in November from a 27-month high of 51.2 a month ago. Despite the fall, Markit noted that it remains the second-highest reading in 2 years and indicates that 'the manufacturing industry continued to pick up steam'. Moreover, although index readings for both output and new orders declined, those 'tracking input and output prices rose at a faster pace to hit their highest levels in 5 years, pointing to further intensification of inflationary pressure'.
Recent releases in China's November macroeconomic indicators suggest that growth continue to stabilize. Yet, weakness in renminbi means that capital outflow should remain a headache. China's growth in industrial production (IP) improved to +6.2% y/y in November, from +6.1% a month ago. This came in better than consensus of +6.1%. Retail sales expanded +10.8% y/y in November, compared with expectations of +10.2% and +10% in October. Indeed, this is the fastest pace of consumer spending growth so far this year. A key contributor to the upside surprise was auto sales, thanks to government tax incentives. Meanwhile, 'single's day earlier in November also helped boost sales of electronics and telecom products. Urban fixed assets investment gained +8.3% in the first 11 months of the year, unchanged from the year through October. This came in line with expectations.
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”.
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...
The latest inflation report continues to portray a subdued CPI, high PPI environment in China. Headline CPI improved to +0.9% y/y in March from +0.8% a month ago. The market has anticipated stronger pickup to +1%. Core inflation (excluding food and energy) rose +2% y/y, up from +1.8% in February. The decline in food prices deepened to -4.4% y/y from -4.3% in February. Nonfood inflation improved modestly to +2.3% y/y, up from +2.2% in February. PPI eased to +7.6% in March, from +7.8% in the prior month, compared with consensus of +7.5%. Both seasonal factors and moderation in the commodity price rally were key reasons for the slowdown. Lunar New Year in the first week of February pushed prices higher and absence of such factor was reflected in the March reading. Meanwhile, mining input prices gained +3.7% y/y in March, compared with a +36.1% y/y rally in the prior month. Oil and gas price, gaining +68.5% y/y in the month, was the biggest driver of PPI inflation last month. We expect PPI to stay high in coming months but growth would be more gradual due to strong base effect. Meanwhile, the rally in commodity prices over the past months is seen passing through to downstream CPI.
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