East Asia Econ (Page 12)

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East Asia Econ

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China - July inflation

Today's July PPI and CPI data in China suggest again that deflation is a bigger risk than inflation.

China – taking stock

China's cycle remains weak. Perhaps money data and excavator sales for July will reinforce the message of the construction PMI that stimulus is feeding through. Otherwise, the risk remains of a growth accident that, via a weaker CNY, gets transmitted to the rest of the world.

China - July foreign trade

Exports remain resilient, but the leading indicators continue to point down, with imports of components slowing again in July. It is likely exports are contracting before the end of the year.

The China Diviner

Chinese exports have boomed since 2019. That boom isn't (yet) turning to bust, but it is likely ending. That's a big issue when the rest of the economy is so weak. Even without a new covid outbreak, there's a rising risk of a real growth accident in 2H22.

China – taking stock

The latest fall in Covid-19 cases could lift activity in August. But with property still very weak, inflation momentum softening and exports slowing, it feels that any upturn in growth would be short-lived.

China - July PMI

The headline PMI was weak in July, and the details were soft too. There's no sign of the cycle finding a durable floor.

China – taking stock

China's export market share gains show local firms remaining competitive, and that should make some individual equities interesting. But macro trends don't look strong enough to lift rates. Indeed, price indicators look more deflationary than inflationary.

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China - taking stock

As remarkable as the weakness in property the last year has been the strength of exports. The downturn in property will be more obvious if that strength in exports isn't sustained.

The China Diviner

Beijing is relying on infrastructure for growth. But with property in recession, exports slowing, and consumption dampened by Covid, the growth hole that needs to be filled feels too large. Without policies that support these other sectors, the current cyclical recovery seems unlikely to persist.

China – Q2 GDP

June data improved, and in July the economic indicators will likely be stronger again. But it doesn't feel like the conditions are yet in place for a sustained recovery in economic momentum through 2H. Indeed, it feels like there is a rising risk that the recovery runs out of steam.

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China – June foreign trade

China's exports continue to show some resilience, but there's nothing to suggest a repeat of the 2020-01 boom that helped lifted the domestic economy out of the first covid shock.

China – June monetary data

Credit data were strong in June, and big enough to help short-term market sentiment. But the details were weaker, with the rebound being driven by government bond issuance.

China - taking stock

The economy is still recovering from the lockdowns of April and May, and that recovery likely still has some room to run. But it feels like downside risks are now growing again. This week's export and monetary data will be useful in evaluating just how large those risks are.

China - June inflation

June's data still don't show much inflation in China. And, outside of food prices, there's not much sign of that being about to change.

China – taking stock

The themes for China cycle are unchanged: recovery; not huge stimulus; an ongoing commitment to zero covid; and a lack of underlying inflationary pressure. These themes need to be challenged before there are bigger shifts in China's financial markets.

China - June PMI

The PMIs rose in June, but the neither the size of the improvement nor the details of the surveys suggest that the economic recovery out of Covid will be particularly strong.

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China – Q2 sentiment surveys

Not only were the headlines in the PBC's quarterly sentiment surveys weak, but so were the underlying indicators that usually lead the overall economy. With little resilience in these indicators, the pace of recovery from the covid lockdowns looks likely to remain modest.

China – where we're at

Our FCI remains accommodative. That, depressed activity, the fall in covid cases and a corporate sector that is somewhat of an even keel should ensure modest recovery. However, without a clearer policy push from the government, a real surge in growth in 2H feels unlikely.

China – May industrial profits

That industrial profits fell in May isn't a surprise. But the fall was fairly modest, and revenue remains on an upwards trend, with corporate earnings likely being helped by the strength of commodity prices in recent months.

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China – where we're at

Covid numbers have fallen, which is good news for the cycle, given the government continues to make clear that zero covid is a pre-condition for everything else. Economic activity is recovering, but so far, the lift seems modest.

China – May property prices

Given everything else we already knew about May, it wasn't surprising that property prices were also weak last month. However, there needs to be a turnaround soon to think the correction is just cyclical rather than structural.

China – May activity data

The May activity data release didn't surprise. Most of the data were better than April, but not all. GDP may have grown YoY in May, but only just. Overall, the economy is recovering, but is still weak.

China – where we're at

China remains on course for modest recovery. Covid-19 remains a downside risk, while the upside is muted without clearer policy support.

China – May credit data

Just as the overall sentiment has passed through peak pessimism, so the credit cycle has lifted from the trough. But the credit data in May were mixed, and absent the emergence of a significant source of demand, the upside for credit is likely limited.

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China – May foreign trade

Foreign trade growth surprised to the upside in May. But the trend is still down, with export growth likely slowing to zero in the next few months.