Absurd as this is in some cases, it’s best to just accept that the narrative around a given macro dynamic can, and invariably will, change every day depending on that day’s data.
To some extent, that’s intuitive — an example of “letting the data speak.” But there’s something profoundly ridiculous about it too.
China was in terminal decline on Tuesday and Wednesday, but somehow, the worst was over by Thursday. Or at least that’s what you’d be inclined to believe if you read Tuesday and Wednesday’s media coverage and then perused some of the soundbites around Thursday’s trade data out of the world’s second largest economy.
Earlier this week, China’s problems were intractable and the loss of confidence associated with Xi Jinping’s totalitarian utopia project permanent. On Thursday, the economy was allegedly “stabilizing,” according to the backward-looking export and import figures. It says a lot about how dire the situation is when an 8.8% decline in shipments abroad from an export-heavy economy counts as “good” news. Economists, you see, were expecting a deeper slump.
Imports contracted 7.3% in August. That too was bad. And good. Bad because it was the sixth contraction in a row and the 10th in 11 months. Good because the market expected worse.
The glass half-full take is simple. Global demand might’ve troughed, and half-hearted stimulus at home could revive the domestic consumption impulse or at least put a floor under the property market.
There’s some evidence for the notion that global demand is recovering. South Korea’s trade data improved last month, for example, and Taiwan’s exports fell 12% YoY in July, which sounds bad but actually counted as the shallowest 12-month decline since October+.
As for domestic demand in China, the jury is still out. Sentiment is very poor. Chinese appear every bit as underwhelmed by Beijing’s piecemeal stimulus efforts as overseas investors. Some observers were excited about an uptick in home sales tied to the relaxation of mortgage rules, but suffice to say there’s no guarantee it’ll stick.
Meanwhile, the yuan fell to a 16-year low against the dollar, which is in “wrecking ball” mode again.
The PBoC is still at it with the fix. Thursday marked the 54th straight session during which the bank set the fix stronger than expected. That’s a record.
Eventually, with the yuan trading near the weak end of the band despite the PBoC’s best efforts, Beijing may need to resort to more forceful intervention or stepped-up capital controls. Unless you think the economy is going to rebound overnight.
But the currency’s woes aren’t just tied to a lackluster growth impulse at home. The US economy’s ongoing strength (on display again this week with a better-then-expected ISM services print) argues for “higher for longer” US rates. And the jump in crude prices is apparently dollar bullish at the current juncture because it too suggests the Fed will be inclined to hold terminal as long as possible.
Remember: One way for the US to starve out would-be economic usurpers is to simply keep rates high and watch everybody drown.
