It would be somewhat odd to characterize an uninspiring set of numbers as “Goldilocks”, but you could argue that the raft of activity data China reported on Monday was “just right”, where that means in line with muted expectations and thereby sufficient to warrant more stimulus, but free of any downside “surprises” that might have suggested things are far worse than anyone thought.
We talked at length about the data in the context of stimulus and monetary policy on Sunday, and generally speaking, nothing has “changed” overnight. The data was in line with estimates, save IP growth, which surprised to the upside.
The economy grew at the slowest pace since the crisis in Q4, in step with consensus.
Retail sales, fixed asset investment and industrial production were mixed, but on an optimistic read, look to have stabilized.
Again, this comes on the heels of a series of lackluster data prints, including both the official and Caixin PMIs falling into contraction territory, disappointing reads on CPI/PPI and December trade data missing estimates by a mile, as the front-loading effect (predictably) disappeared.
“General weakness in activity data and the significantly-below-expectation inflation data have raised concerns about deflation once again after it disappeared in 2016 [and] there are also increasing concerns about a sudden rise in unemployment around the Chinese New Year since it is the time of the year when many employees renew their contracts”, Goldman writes on Monday, adding that all of this is “keeping policymakers on their toes.”
Barclays is somewhat constructive on the numbers, characterizing the situation as “stabilization at a low level.” The bank, like everyone else, expects more RRR cuts and reiterates some of the points we made Sunday about the Fed’s dovish slant affording the PBoC some room to maneuver.
“On the policy front, we continue to expect more monetary easing measures to be rolled out, including an additional 200-300bp of RRR cuts over the remainder of the year, and MLF replacements, in light of rising downside risks to growth and see the potential for policy rate cuts if data continues to disappoint”, they wrote in a note out shortly after the data hit.
The bank’s Yingke Zhou goes on to say that “a more patient Fed and stronger CNY should also offer Chinese policymakers more easing room, while their targeted efforts have lead to some stabilization in credit growth after 16 months of retreat, with the structure and sustainability of new lending being scrutinized for signs of a recovery.”
It’s worth noting that the PBoC is reportedly pushing for a move to merge the benchmark rate with the 7-day reverse repo rate in an apparent effort to get cheaper credit flowing to the real economy.
Anyway, on the data and the prospects for more easing, it’s the same story no matter who you ask. “We believe that real growth data could continue to be under downward pressures, especially against stiffer headwinds from trade, [but] we believe policy makers are stepping up policy easing measures”, BofAML mused on Monday morning, on the way to predicting that “credit growth [will] bottom in 1Q19, leading to a stabilization/improvement of activity growth 3-4 months afterwards.”
You get the idea.
Meanwhile, mainland and Hong Kong shares rose on the day, extending their 2019 gains. Both the Hang Seng and the HSCEI are up more than 5% so far in the new year.
On the mainland, the SHCOMP managed a decent session. So far this year, mainland shares are up nearly 5% – the SHCOMP is looking for its first monthly gain since September.
Trade concerns are still front and center with reports out overnight indicating that there’s been little progress on the highly contentious IP issue. All eyes are on the March deadline.
“Probably the biggest uncertainty in terms of growth outlook is the trade talk”, Goldman said this morning. “If both sides can avoid further escalation after February, growth may surprise on the upside given policymakers will likely still maintain a relatively loose policy stance.”