The HSBC/Markit flash PMI fell surprisingly in November to 50.4. Uncertainties faced by Chinese manufacturers remain large but unfortunately they will be met with some even tougher years ahead, when they will be subject to a major restructuring.
The path for China’s next decade has been laid. From the conference communique of the third plenum, we noted a few very interesting elements that deserve some attention. Despite the attention of liberalising the economy, the Chinese state will likely maintain a tight grip of the economy.
China’s robust trade data in October indicates recovered global demand, but the joy for Chinese exporters may not last long. Reforms to push the economy away from export dependency may be worked out in a closed party meeting beginning tomorrow.
At the third plenum of the 18th Central Committee, which begins on 9 November, a policy framework that sets China's path for the next decade is likely to be unveiled. China is moving into a new era. The economy may underperform in the near term, but the long-run benefit is a sustainably higher growth.
The Chinese PMIs point to improvement in industrial activities, which we still believe to be short-lived. A breakdown of the sub-indices offers some interesting observations and how large and small producers are doing.
Flash manufacturing PMI from China increased to 50.9 in October from 50.2 in September. The new orders index was the main contributor to the rise, which point to further improvements in coming months.
Chinese economy has stabilised in Q3 but the recovery is likely only short-lived because it is driven by cyclical factors. Structural challenges continue to be large and China is in the transition towards a new growth model where growth quality is preferred to quantity.
The Shanghai Free Trade Zone was officially unveiled on 29 September. More specifications remain to be formulated. Here is a factsheet on the disclosed details.
Because of lower credit demand pressure and looser liquidity supply, we do not expect another panic in the Chinese money market as in June. Credit will be kept tighter in the future, but this will take place rather smoothly.
The HSBC/Markit PMI continued to surprise positively this month, suggesting a turnaround in Chinese industrial sector. However, the good news will not last more than a few months. Likonomics will return to tackle the fundamental challenges.
China's shadow banking is growing again. This is good news for short-term growth but adds to downside risks in the long run.
Chinese growth will stabilise in the coming two quarters thanks to cyclical improvement in exports and industrial production. Longer out in the future, Beijing will actively pursue a lower growth to give room for structural reforms.
Finally a positive surprise from Chinese PMI. Mini stimulus and restocking are the main reasons as Beijing is working to make the growth target this year. However, excess credit and overcapacity in some sectors will prevent the turnaround to prolong.
It has become overwhelmingly clear that the strengthening in the CNY against the dollar has once again paused. The weakness in the economy has lead to both mini stimulus and a stabilisation of the CNY. The big question now is how long will this stability last, and will we see an actual weakening in the CNY?
The manufacturing HSBC/Markit PMI for July was not encouraging news. The weakening growth outlook increases the likelihood of fine-tuning measures on the fiscal policy side, as especially the labour market seems to be weakening. This puts pressure on the authorities to shore up activity until structural reforms and a recovery in the US & euro area start supporting growth.
The Chinese central bank took a step forward in long-awaited interest rate reform, when it announced that it will scrap the floor on rates that banks can charge for loans. To some observers’ disappointment, the central bank did not touch the cap on deposit rates. The announcement has significant signalling value, as it indicates interest rate reform is underway.
The Chinese economy grew by 7.5% in Q2, a further slowdown from the 7.7% in Q1. The authorities are likely to remain determined on implementing structural reforms to tackle rising fundamental issues. They are now willing to accept a lower growth for long-term sustainability.
China’s total debt ratio stood at 223% of GDP at the end of 2012. Shadow bank lending accounted for nearly half, at 94% of GDP. Credit risk has increased considerably, but we still believe that China will avoid a full-blown financial crisis.
China’s economy is slowing down, but that was not exactly the impression I got during my visit to Beijing about a month ago. It was my second visit to the Chinese capital. The first time was in 2007 when the …
Kinas økonomi er på vej ned i tempo, men det var nu ikke lige det indtryk, jeg fik, da jeg for en måneds tid siden besøgte Beijing. Det var anden gang, jeg var i den kinesiske hovedstad. Første gang i …
The current liquidity squeeze in China is intended by Beijing as a measure to curb credit risk. We expect them to maintain a hawkish stance and the credit crunch will persist for some time. The small and midsized banks will be hit hard. A possibility of a mass bankruptcy should not be neglected, although the likelihood of a full-blown financial crisis is small.
The Chinese manufacturers are still struggling and the domestic activities have slowed down. However, from the recent policy signals we believe that the top leaders in Beijing will maintain a steady monetary and fiscal policy. The Xi-Li administration seems determined to reach a sustainable long-term growth.
May data from China suggest continued weak growth in Q2, but a significant worsening seems unlikely. The large drop in trade data is likely a result of disappeared data manipulation.
The Emerging Market and commodity currencies (“carry” currencies) have depreciated against USD and EUR in May, in particular AUD and ZAR have been hit. We expect stabilisation in China’s data soon, and the Fed is not to end QE in …
The HSBC/Markit manufacturing PMI for China was a disappointment. Industrial production looks set to remain subdued over the coming months, and it is hard to expect a significant pick-up in growth in Q2 from the disappointing Q1.
Social matters, such as corruption, income inequality, heavy social burden and pollution, should not be neglected, as they pose serious risks in terms of China being able to shift to a balanced and sustainable economic growth model. Unfortunately, no easy solution exist.
The consumption boom has just started and is set to continue for many years. However, rising youth unemployment may pose downside risks to the scenario of a consumption-driven economy. The future is continually bright for manufacturing workers, especially those who returned to the west.
I just returned from a two-week trip to China. In my trip notes I will share some of my most interesting findings and impressions. This is the first part of the notes and here I argue that investment-driven growth miracles will continue in west China.
The preliminary HSBC/Markit manufacturing PMI for China was a disappointment, falling from 51.6 to 50.5 in April. This does not change our expectations of a gradually recovering Chinese economy, but is a sign of China adapting to a lower growth environment.
China’s sluggish Q1 GDP growth weakens expectations that the global recovery had gained strength at the beginning of the year. Nevertheless, credit growth picked up steam in March, which raises expectations of accelerating growth in Q2.
We have long argued that the Chinese housing sector differs from area to area and imbalances should be assessed on a regional basis. In this report we analyse the development of housing prices, construction activities, transaction volumes and inventory build-ups in the tier one, two and three cities separately.
In a long time, the Chinese GDP figures were merely a laughingstock for economists around the globe. The key to change the culture of over-reporting lies in Beijing. We believe that the new administration has promoted for other criteria than simply growth. A new normal seems to have emerged.
We have an optimistic view on Chinese growth prospects and are expecting GDP-growth aroung 8% both this year and next year. Risks related to the housing market and to the local governments funding problem though remain.
Language barrier and information restriction make it difficult for the outside world to get a true picture of what ordinary Chinese think and want. Here we present the results of China's largest opinion poll, released today, where 85,000 random persons responded. A number of topics are touched on and provides an excellent overview of what ordinary Chinese care about in 2013.
Premier Wen Jiabao’s speech at People’s Congress opening today was lengthy and offered little news that could shake the markets to the core. Nonetheless, it was positive to confirm that the future economic policies will increasingly emphasise on improving the livelihood of ordinary people. New president and premier will inaugurated between 13 and 16 March.
The sell-off in metals on the London Metals Exchange (LME) continued last week sending several base metals into “over-sold” territory on certain technical indicators. A confluence of factors have contributed to the recent correction in our view. Growth expectations have …
The Chinese industrial sector has cooled down in February. It did not come as a surprise to us, as we have always believed in an uneven recovery path, where the export sector remains as a key risk factor. We continue to see the Chinese economy ticking upwards in the coming months.
Metals were sent to the slaughter last week as the LME index shed 5.5% to erase all gains year-to-date. The return of the Chinese to the marketplace resulted in a sudden turn of risk sentiment across the commodities space, especially …
Macro and Events in Brief Focus shifted back to Europe last week as markets realised political risk in the Euro-zone has not disappeared despite a substantial easing in financial market tensions. ECB president Mario Draghi also managed the impressive task …
Trading in base metals markets may move into hibernation mode this week as China celebrates the new year of the Snake. The LME index closed 4.35% higher year-to-date on Friday, a whisker below its 10-month high reached earlier in the …
Weekly comment: Strong Chinese raw materials appetite in December Sentiment continues to ebb and flow in the base metals markets. The LME index ended last week marginally lower, as aluminium underperformed and nickel over-performed the rest of the major base …
The Chinese economy expanded by 7.9% y/y in the fourth quarter and the full-year growth for 2012 became 7.8%, thanks to public infrastructure investments and rebound in the house market. We expect the recovery to continue in 2013 with a full-year growth rate of 8.1%. We do not believe the PBoC will cut interest rates in 2013. The CNY will be kept as a potential tool to help exporters.
We enter these data points being long risk. A trough in China could spur our commodity strategy as well as risk on trades in FX. In terms of US consumer confidence data we have seen that confidence has sharply deviated from actual spending, a re-bound in the consumer data would certainly be great news going forward. As a strategy we continue to see more selling pressure in US rates compared to EU.
Fresh Chinese data this morning supported our longstanding view that the Chinese economy is turning towards brighter days. December exports grew by 14%. Off-balance-sheet credit was very high, indicating the overall credit conditions were not as tight as they appear. Generally, we expect the economy to continue recovering thanks to fiscal stimulus.
The bottom in base metals prices is most likely behind us for now. A recovery in global manufacturing activity is taking hold, but a few hurdles must be passed. We make minor upward revisions to our price forecast for Al and Cu in 2013, and expect higher average prices across the board in 2013 compared to 2012.
Continued improving flash PMI once again confirmed that the Chinese economy is turning around. We stick to our stance that a steady recovery will occur during the first half of 2013. The fragile external demand remains a downside risk.
Here is the Global Week Ahead. The publication covers next week’s major numbers and events.
The November PMIs from both the official and private (HSBC/Markit) sources have continued upwards. The readings support our stance that the Chinese economy is bottoming out and a robust recovery is expected during the first half of 2013.
UPDATE! Now with link to web presentation. Winter equinox marks the day when the days are shortest—and from then on days become longer. The same can be said of the global economic development. In spite of the growth in 2012 has been slightly weaker than expected we still see economic growth improving. We have lowered our growth forecasts for 2012 and 2013 marginally but upped our 2014 forecasts.
Chinese economy has reached the bottom and seems to be headed for increased economic growth. Through infrastructure investments the Chinese government has kept the economy going and the GDP growth will probably reach 7,8 % this year. Watch senior analyst Amy Yuan Zhuang comment on the …
The HSBC/Markit flash PMI continued to rise for the third consecutive month in China. Today’s encouraging news highlights our longstanding stance that the Chinese economy is turning and momentum is gradually starting to build.
China’s new leaders were unveiled this morning. As expected, Xi Jinping became the new party chief and head of the 7-person Standing Committee that rules China. The new team of leaders is expected to carry out reforms in a gradual and cautious manner. Read about the potential reforms and why the pace will be slow here.
Kiinan talouskasvu on hidastunut tänä vuonna arvioitua enemmän. Aiempia vuosia enemmän keskustelua ovat tänä vuonna herättäneet Kiinan viranomaisten kasvutavoitteet, sillä kasvu on ensi kertaa pitkästä aikaa itse asiassa lähestymässä kasvutavoitteita.
The 18th Communist Party Congress beginning tomorrow is the biggest political event in China in more than a decade. A new generation of political elites arises. Xi Jinping will become head of the nation as expect. Do not anticipate any tangible reform plans to be announced during the Congress. The power transition will have greater impacts on the economy in the longer term.
Elections in US and in China will dominate headlines. Central bank meetings at the ECB and the Bank of England. First independent Danish rate hike in almost four years, weak Swedish production numbers and low Norwegian core inflation.
The Chinese industrial sector is improving which reinforces our longstanding view that the Chinese economy is at bottom. We maintain our expectation of no more cut of interest rates or reserve ratios this year. However, there is still some way to go before a sustainable recovery can be voiced.
The ISM and the labour market report will be the last major economic news before the Presidential election on 6 November, and they will therefore attract more attention than usual. Our view on the most important key figures is broadly neutral compared to consensus estimates.
Improved flash PMI confirmed that the Chinese economy has reached bottom. It is the last economic indicators from China before the once-in-a-decade leadership change in two weeks. The improved data lately will be used by the Chinese government as proof for suc-cessful economic policies and strengthen confidence in the leadership.
The most important events this week will be the FOMC meeting and the Troika review of Greece. We expect the Riksbank to stay on hold.
Asian currencies have generally performed well vs. the USD in the past month benefiting from increased risk appetite in the markets and return of the search for carry behaviour.
The Chinese economy grew by 7.4% y/y and a further slowdown since previous quarter. However, we believe that the Chinese economy has reached bottom. Stabilization will be more visible in the final quarter of the year before a bumpy and uneven recovery to take place during H1 2013.
China’s exports and imports have showed a modest rebound in September which we see as temporary. Continued uncertain outlook for the global economy will keep weighing on China’s exports in the coming months, and it may be a challenge for China to achieve 10% export growth this year.
This week’s key event will be the EU Summit Thursday and Friday although it may not necessarily provide the news about Greece and Spain that the financial markets are waiting for.
We are lowering our Chinese growth forecast to 7.8% for 2012 from 8%. We still believe the economy is currently bottoming out at around 7.5% growth but the comeback is slightly longer in the coming.
During three weeks’ vacation in China visiting relatives and travelling around the country, I discovered that the average consumer did not seem to be affected by the on-going slowdown in the Chinese economy. The recession mood could neither be seen nor heard.
The tiny rise in confidence does nothing to change the weak outlook of the Chinese economy, and underlines expectations of a fragile Q3.
This Week Ahead brings fewer important events, but will surely have its moments. While the markets are still digesting the Fed and ECB announcements, Spain is watching the markets and biding its time.
QE3 from Fed and Wild Wednesday in the Euro area next week
The government-induced slowdown in China as a part of the transition towards a sustainable consumption-driven economy ran into stronger-than-anticipated headwinds in the first half of 2012.
Here is a presentation of our new Economic Outlook for China - Stability, stability and ... stability
Slide fest for the data hungry. Presentations on China, the US and the Euro-area following up on our latest Economic Outlook report.
The Asian FX outperformance vs. the USD from the past two months may be reversed in the short term, as prospects for the global economy continue uncertain. A weaker currency is more than welcome for the Asian policy makers.
The Chinese manufacturing sector continues to suffer. Deteriorating employment situation prompts for an interest rate cut to ease the funding burden faced by struggling manufacturers. Policy makers’ cautious attitude will remain and no quick rebound in the economy is expected.
Will the ECB deliver? Hopes are high but expect somewhat of a disappointment as they won't reveal all.
Kiina mielletään perinteisesti vientivetoiseksi taloudeksi, joten voi tulla yllätyksenä huomata, että tosiasiassa Kiina on maailmantalouden ongelmien myötä muuttunut yhä investointiriippuvaisemmaksi. Miten tässä näin on päässyt käymään?
China’s HSBC/Markit Flash PMI dropped to its nine-month low in August, dragged by both output and orders sub-indices. The very weak numbers call for additional stimulus measures from Beijing which we expect to be taken shortly.
Chinese July data this morning surprised on the downside. We see an increased possibility of central bank action within a month, as the National Congress of the Communist Party is approaching and the stability-obsessed officials want to maintain confidence in the leadership.
The dust has not yet settled after yesterday’s ECB press conference, where President Draghi dealt a blow to hopes that the central bank will quickly make huge bond purchases to address the Euro-area debt crisis.
The Chinese manufacturing sector remains fragile as shown in the July PMI numbers. This is fits our view that recovery in the second half of this year will be slow. Though the country's leaders have pledged a focus on growth, measures in terms of investments may cause more problems in the longer term.
China’s HSBC/Markit Flash PMI picked up modestly in July, reaching the highest level since February this year. We maintain our projection that Chinese economy will recover gradually during the second half of the year.
Chinese economy grew by 7.6% in Q2. It was the lowest growth in three year but in-line with expectations. We do not expect to see the economy slow further but rather pick-up steam.
Summertime has more often than not seen plenty of market action in the past few years, and we do not expect this time to be an exception.
"Life after the storm" was a good title for our May EM FX Monocle – indeed, EM FX volatilities have declined and the currencies started to recover in June.
The HSBC/Markit PMI continued to fall in June, pointing towards a weak manufacturing sector and economy as a whole in Q2.
The world is still here today! The currency markets reacted positively to the outcome of Greek elections. The 17th of June was "make it or break it" for EUR in many eyes and hence no surprise the EURUSD jumped to 1.2748 on the news.
Sentiment took a turn for the worse in May, which was also reflected in a broad range of Asian currencies.
Sentiment took a turn for the worse in May, which was also reflected in a broad range of Asian currencies.
In general, the Chinese dataflow over the weekend was not as weak as one could have feared after the rate cut last week, and even cautiously encouraging if taking into account the new lending data received today.
Apart from the continued talks around when Spain will make the official request for aid to its banks, the Greek elections are definitely the main thing to follow.
We got our rate cut this week - not from the ECB but from the PBoC. Chinese benchmark interest rates were cut by 25bp in a surprise move, sending a strong signal that growth is a priority in China.
After this week’s heavyweight US economic data, the spotlight is even stronger in the Euro zone again next week.
An increasingly clear picture is emerging of a US economy that has gained momentum and is slowly heading for a selfsustaining upswing, while Europe seems to be sliding into a deeper crisis than previously anticipated.
We expect US economic data to continue to come in on the weak side, putting renewed pressure on risk appetitive and continuing to support the safest assets.
The decline in manufacturing confidence supports expectations of further stimulus measures from the Chinese authorities. After a bleak Q2 we thus expect growth to strengthen towards the end of the year.
The storm did come after the calm, as our April issue of the Monocle suggested. It may get worse before it gets better in the coming weeks, but not for long.
All eyes remain on anecdotal news on how depositors in Greece and outside the country are reacting to the recent events. In terms of economic data releases, the main focus will be on flash PMIs for May.
The Chinese central bank (PBoC) cut reserve requirements by 50 bp last weekend, thus continuing to ease monetary policy. However, the pace remains slow, and we do not think the PBoC is done yet.
Chinese inflation slowed in April in line with expectations. This leaves room for fruther reserve requirement cuts.
The expected slowdown in Chinese commodity imports finally showed up in preliminary April trade data and seems in-line with both our and the market’s expectations.
The Chinese trade surplus surprised on the upside, while the weak import figures raise worries regarding domestic demand. We expect growth to remain slow in Q2.
Outlook for next week's key figures and events in the US, the euro area, China, Japan, UK, Canada, Switzerland, Australia and New Zealand.
The CNY has in recent days taken advantage of its broadened band, as the fixing has been pushed clearly higher. We still expect a gradually stronger CNY towards the end of the year.
Both manufacturing sector PMIs - the HSBC/Markit index and the NBS’s official PMI - rose in April. The indices remain, however, at very divergent levels, increasing the uncertainty of the Chinese economic outlook.
After a strengthening early on in the year, many Asian currencies have held steady over the past month or two.
Bond markets appear due for a correction, but we expect next week’s events and economic data only to add to the gloomy sentiment.
Following the good start of the year, EM currencies did not hold on to the gains. Yet the orderly gradual EM FX decline has not produced much volatility creating the impression of a bomb waiting to explode if only another “black swan” event strikes.
Next week’s calendar looks quite interesting, with the main focus in the US on the 2-day Fed meeting concluding on Wednesday.
The trading band of the CNY around the USD was widened from +/-0.5% to +/-1.0% around the central parity set by the central bank, which was no huge surprise after recent comments.
The trading band of the CNY around the USD was widened from +/-0.5% to +/-1.0% around the central parity set by the central bank, which was no huge surprise after recent comments.
The Chinese economy grew by 8.1% y/y in Q1 – the weakest in almost three years. The GDP figures thus confirm the already established view of a continued slowdown in the Chinese economy.
New lending in China reached CNY 1010bn in March, picking up clearly from January and February. Although this supports expectations of a gradually turning Chinese economy, we continue to expect further reserve requirement cuts this year, as the economic outlook remains fragile.
Based on impressions from Hong Kong and Shanghai: We expect mostly negative news in the coming months, but the real challenges are in the medium term - in finding Modern Chinese Communism.
Traffic in Shanghai and the business climate in China seem to have much in common. If you look before crossing the street – either left-right or for the green light – then bicycles, scooters and cars alike will cross ahead of you, no matter the traffic rules.
Renminbi internationalisation might be relatively swift. Gradually extending the use of CNH to include more capital transactions and promoting local currency invoicing among Chinese companies are likely ways to continue the process.
The batch of good economic news seems to have run its course, suggesting financial markets might be at a new turning point.
The economy is slowing, house prices are falling, market-based construction has stalled, and local government debt is a key concern. Yet the real challenges are in the medium term - in modernising China.
Risk is mispriced, again. And hence caution is still essential. But unless some of the key risks actually materialise, we are most likely to see Emerging currencies drift stronger over the coming months.
Huoli Kiinan investointikuplasta ja sen puhkeamisesta on ollut jatkuva keskustelunaihe. Kiinan viranomaisilla onkin vahva syy jarruttaa investointeja ja siirtää talouden painopistettä kulutukseen. Siirtymä tuskin tapahtuu kuitenkaan kriisinomaisesti.
The next leg upwards for base metals, notably copper and aluminium, could be approaching. Copper and aluminium buyers should therefore be aware and consider hedging their price risks accordingly.
It is too early to call the end of the commodities boom.
Kiinan talouskasvun hidastuminen on seurausta maan keskuspankin tietoisista toimista hidastaa inflaatiota. Inflaation nyt jo maltillistuttua keskuspankki on jälleen alkanut höllentää rahahanoja, mikä hiljalleen tukee talouskasvua. On siten syytä uskoa, että Kiina kääntyy jälleen maailmantalouden kasvua jarruttavasta tekijästä kasvua tukevaksi tekijäksi.
Considering the macro risks hanging over the global economy, we argue that markets may be too complacent. We see four downside risks that could materialise this year, undermining global growth and eventually negatively affecting investor confidence and market valuations of risky assets.
Contrary to expectations, inflation broke a five-month easing trend in January. Monetary easing still expected, but pushed back.
Many interesting and globally important stories in easily digestable format.
Who will replace Hu? When will Wen step down? - Here is what you need to know about the change of leadership.
Presidential election of Putin - Xi Jinping new top China official - Taiwan Strait tensions could increase - New presidents in Mexico and Korea? - The end of Chavez? - One step at a time in Egypt
Another year is over – a new year is beginning, and kill or cure will be the theme for 2012.
European debt crisis continues to weigh on Asian currencies
In a draft action plan for the G20 meeting, China commits to more currency flexibility.
No hard landing in China. If the situation abroad worsens, the authorities still have enough room to manoeuvre.
The key message in our new Emerging Markets FX Outlook is that FX risks are lower, but liquidity risks are higher. We currently see interesting opportunities in CNY, risk of emergency hikes in Hungary and a strong PLN by year-end.