Mon, Apr 06, 2020 @ 16:04 GMT
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 PMIs slumped to the lowest on record in February. Both the official and Caixin’s reports show that China’s economic activities were severely hurt by the coronavirus outbreak. Since the number of infected cases spiraled in late January, the...
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.
Chinese macroeconomic activities showed sharper than expected slowdown in July. Retails sales grew +10.4% y/y in July, down from +11% a month ago. The market had anticipated a milder moderation to +10.8%. Industrial production expanded +6.4% y/y in July, decelerating from +7.6% in the prior month. This came in weaker than consensus of +7.1%. Urban fixed asset investment expanded +8.3% in the first 7 months of the year, slowing from +8.6% in the first half of the year. The market had anticipated a steady growth of +8.6%. The slowdown in economic activities in China has been widely expected as the government pledged to deleverage in at attempted to defend and prevent systematic risks. However the abovementioned three major indicators came in even weaker than expectations. We expect Chinese economic growth to moderate in the second half of the year. Yet, the strength in the first half (GDP growth: +6.9%) signals that the government's full year target of 'around +6.5%' should be able to achieved.
China's latest set of PMI data indicated slowdown in the country's activity growth. The official manufacturing index was reported to have dropped -0.6 point to 51.2 in April, whist the non-manufacturing PMI declined -1.1 points to 54 for the month. The slowdown was broadly based: the 'output' index slipped -0.4 point to 53.8 and the 'new orders' index dropped -1point to 52.3. The 'new export orders' index fell for the first time in 4 months, losing -0.3 point to 50.5, although the three-month moving average remained up. The 'input price' index sank -7.5 points to 51.8. The trend indicates that PPI inflation should have slowed more sharply in April. Recall that the March reading was +7.6% and the February reading was a record higher of +7.8%. The only sub-index that has shown improvement was the 'stock of finished goods' index, which gained +0.9 point to 48.2.
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'.
China's economic activities surprised to the upside in 1Q17. GDP expanded +6.9% y/y, beating consensus of, and 4Q16's, +6.8%. Growth was led by a +7.7% expansion in the tertiary sector, followed by a +6.4% growth in the secondary industry. Economic activities also strengthened across the board in March. Retail sales expanded +10.9%, accelerating from +9.5% in the combined January to February period. Industrial production (IP) growth improved to +7.6%, the fastest pace since end-2014, from +6.3% in the January-February period. The market had anticipated a mild drop to +6.2%. Fixed asset investment (FAI) increased 9.2% y/y to March, up from +8.9% in the January-February period. Looking into the details, investment gained +19.8% in the primary sector, +4.2% in the secondary sector and +12.2% y/y in the tertiary sector. Moreover, private investment expanded +7.7% y/y in March, up from +6.7% in the prior month, while the growth in public investment slowed to +13.6%, from +14.4% in February. For the first quarter of the year, retail sales grew +10%, IP rose +6.8% with manufacturing output up +7.4% while fixed asset investment expanded +9.2%, of which real estate investment and tech investment up +9.1% and +22.6%, respectively.
China's manufacturing activities contracted for the first time in 11 months, as Caixin/Markit's PMI index suggested. The report shows that the manufacturing PMI dropped -0.7 points to 49.6 in May (a reading below 50 signals contraction), compared with consensus of a milder drop to 50.1. While the sub-indices of output and new business remained in the expansionary territory, but both fell to their lowest levels since June last year. Meanwhile, the sub- indices of input costs and output prices drifted to the contractionary territory for the first time since June 2016 and February 2016, respectively. Meanwhile, the sub-index of stocks of purchases showed renewed decline. The rebound in the sub-index of stocks of finished goods suggested that companies stopped restocking as inventory levels increased.
In PBOC's latest set money report, China's new renminbi loans rose to RMB 2.03 trillion in January. However, it came in below consensus of RMB 2.44 trillion and RMB 2.5 trillion the same period last year. Although it is usual for new loans to be high earlier in a year as banks front-load their loans for profit maximization, the January figure missed expectations as lending to non-bank financial institutions fell for the month. Outstanding renminbi loans growth decelerated to +12.6% y/y, from +13.5% in December. Medium and long term corporate bank lending, a barometer of corporate sector demand, increased +43.4% y/y to RMB 1.52 trillion, whilst medium- and long-term household loans, mainly mortgage loans, rose to a record high of RMB 0.63 trillion. This suggests that PBOC's recent tightening measures have yet to feed through the housing market. We believe a few months' data would be needed to see the effectiveness of these measures.
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.
China's headline CPI accelerated to +1.2% y/y in April, from +0.9% a month ago, as mainly driven by the recovery of food disinflation. Food price contracted -3.5% y/y, following a -4.4% drop in March. Nonfood inflation rose to 2.4% y/y in April from +2.3% a month ago. Core inflation (excluding food and energy) improved to +2.1% y/y from +2% in March. Such level should be in line with the government's target. PPI moderated to +6.4% in April from +7.6% in March. The deceleration came in more than expectations. A key contributor to the slowdown was commodity prices which slowed further in April as low base effects dissipated. Global prices also pulled back after the strong rally earlier in the year.
PBOC's move earlier this month to increase interest rates for its standard Open Market Operations (OMO) and Standing Lending Facility (SLF) has sparked speculations of monetary tightening. On February 3, the central bank announced to raise interest rates of 7-, 14- and 28-day reverse repos by +10bps each to 2.35%, 2.5% and 2.65% respectively. At the same, the overnight SLF rate was lifted to 3.1% from 2.75% previously. It was also reported that SLF rates for those banks that fail Macro-prudential Assessment (MPA) requirements is increased by +100 bps.
China's trade surplus narrowed to US$40.8B in December from USD44.6B a month ago. From a year ago, exports contracted -6.1% y/y, deteriorating from a -1.6% drop in November, while imports growth decelerated to +3.1%, from November's expansion of +13%. Both contraction in exports and expansion in imports came in worse than expectations. We are concerned that rising oil prices would continue to weigh on the country's balance of payment given China's huge crude oil imports. Released last week, the country's FX reserve was reported to have dropped -US$41B, to US$3.01 trillion, in December. Similar to the past 5 months, the decline was driven by government's selling of foreign currencies to moderate renminbi depreciation
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.
While lacking surprises, the US-China meeting held last week managed to avoid a trade war between the world's two biggest economies. Donald Trump and Xi Jinping agreed on a 100-day plan on trade that aims at boosting US exports. Meanwhile, the North Korea issue has remained a deadlock. Trump's announcement to launch airstrike in Syria during the meeting, followed by the deployment of a US navy strike group near the Korean peninsula, is a call for China to take necessary measures to address North Korea's nuclear program. Intensified geopolitical tensions have continued to pressured Korean financial market with Korean won extending weakness for a 5th straight day against US dollar while the country's benchmark equity index, KOSPI, recording the biggest one-day selloff in 6 weeks.
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