China’s Recovery Continued In November. PBoC Surprises With 950 Billion Liquidity Injection

Dust off the boilerplate China recovery copy.

The world’s second-largest economy continued to perform in November, activity data out Tuesday showed.

Industrial production rose 7% last month, in line with estimates, while retail sales matched consensus as well, rising 5%.

This marks the fourth consecutive month of gains for retail sales, a welcome development. Recall that in the initial stage of the country’s recovery, domestic demand was subdued, lagging conspicuously behind the “V-shaped” bounce in industrial output.

Tuesday’s data comes on the heels of blockbuster export figures out earlier this month. Shipments abroad jumped 21% in November, the most since early 2018. The $268 billion in goods shipped was a record. Imports, meanwhile, rose a third consecutive month.

In other notable news out of China Tuesday, the PBoC rolled 600 billion yuan in maturing MLF, offering 950 billion yuan at 2.95%. Although the rate was unchanged, the overshoot (i.e., the net injection of 350 billion yuan) may help pacify a market that’s still concerned about the prospect of tighter policy going forward.

Consensus (to the extent there’s ever really a “consensus” on this) was looking for an ~800 billion yuan injection. It was the fifth straight month of net injections via MLF.

The yuan has, of course, appreciated steadily since the summer, while the spread between China’s 10-year bonds and USTs has widened over the same period.

Eventually, that could cause problems. Although November’s export data shows the yuan’s appreciation isn’t yet an impediment, officials will likely step in eventually.

China slipped into CPI deflation in November for the first time since 2009, data out last week showed. That’s expected to be a temporary state of affairs, influenced heavily as it is by a single variable, but it does give the PBoC an excuse to dial down expectations for more policy tightening in the near-term. That could be advantageous in the event Beijing wants to curb yuan strength.

China, you’re reminded, is the only major economy on the planet expected to eke out growth in 2020.