Well, the manufacturing picture continues to darken, pretty much across the board.
If this is starting to sound repetitive, that’s because it’s largely the same story in each successive data point. Activity gauges in Italy and Germany disappointed today, but let’s zoom in on China in the context of the trade talks and the juxtaposition between the official manufacturing gauge and the Caixin print out Friday.
China’s official manufacturing PMI (out Wednesday) added to the “things are stabilizing at a low level” narrative – that story is basically the glass half-full take on China’s December activity data.
(Bloomberg)
But while the official gauge ticked higher to 49.5 in January (albeit still in contraction territory), those looking for more fodder for the “stabilization” story did not find it in the Caixin survey which printed 48.3 in January, down from 49.7 in December. That was well below estimates and is the lowest reading since February 2016.
(IHS Markit)
Here’s the official word from the press release:
On the whole, countercyclical economic policy hasn’t had a significant effect. While domestic manufacturing demand shrank, external demand turned positive and became a bright spot amid positive progress in Sino-U.S. trade talks. As companies were more willing to reduce their inventories, their output declined, indicating notable downward pressure on China’s economy. China is likely to launch more fiscal and monetary measures and speed up their implementation. Yet the stance of stabilizing leverage and strict regulation hasn’t changed, which means the weakening trend of China’s economy will continue.
The first sentence is probably the most important. Stimulus isn’t yet working its way through to the real economy, and given everything that China has announced recently in terms of fiscal, monetary and macroprudential easing, the next batch of data will be key.
Both Trump and China attempted to paint and upbeat picture on trade Thursday, but one can’t help but suspect that Washington and Beijing are still miles away (to quote Wilbur Ross) from resolving the thornier issues at the heart of the dispute. Steve Mnuchin’s planned trip to China and news that another Trump-Xi meeting may be in the cards are ostensibly positive headlines, but skepticism remains.
On Friday, Xinhua published a statement regarding China’s agreement to up imports of US energy, farm products and industrial goods and services, but it was characteristically short on details. The statement also said the two sides are going to “strengthen cooperation” on IP theft and forced technology transfer, but we’ve all heard that before.
Meanwhile, Goldman is out with a preliminary reading for December on their China Current Activity Indicator, and it’s sitting at just 4.6% annualized now.
(Goldman)
As you can see, glaring deviations from GDP are not really “rare” (per se), but when they happen, it’s usually during times of acute stress (e.g., the GFC; in 2015/2016 around the yuan devaluation and Chinese equity market collapse; today).
Oh, and incidentally, China cut its Treasury holdings for a sixth consecutive month in November to $1.2 trillion – the lowest since May 2017.
(Bloomberg)
China will of course be on holiday next week, a welcome reprieve I’m sure.
