As if on cue.
Amid increasingly shrill warnings about rising defaults, China on Friday said industrial profits rebounded sharply in November, rising 5.4%.
That’s good news (assuming it’s all the way true, of course), considering October’s 9.9% plunge was the worst on record.
That snaps a three-month string of declines and will come as a relief to those who worry that between the slowing economy and Beijing’s newfound tolerance for defaults, the situation in China might get materially worse before the trade truce and the slow drip of PBoC easing has a chance to work its way through.
China has been struggling with a pernicious combination of falling factory gate prices (red bars in the chart) and the highest CPI inflation in seven years, a juxtaposition that’s left policymakers in something of a bind.
In addition to being a drag on the outlook for global inflation (and thus working at cross purposes with central banks’ efforts to reflate), PPI deflation is extremely vexing for China’s industrial enterprises, which are contending with lackluster demand on the home front, as exhibited in falling retail sales, contracting imports, diminished appetite for credit and the worst auto slump on record.
The NBS on Friday cited rising industrial output and sales in explaining the profit rebound, but warned that volatility and uncertainty still exist. China, the NBS reminded markets, faces relatively large economic downward pressure.
Some observers believe that “relatively large” pressure will manifest itself in sub-6% growth as soon as Q4.
As Bloomberg’s Wes Goodman noted on Friday, the CSI 300 is within shouting distance of the April highs. It won’t take much of a catalyst to push the gauge to new highs for the year.