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China: Mixed hard data as Premier Li hints at more stimulus – Danske Bank

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Nov 12, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    FXStreet (Delhi) - Chief Analyst, Allan von Mehren at Danske Bank, suggests that while Chinese PMIs have pointed to a cyclical bottom, the hard data for October production points merely to stabilisation but not yet a recovery.

    Key Quotes

    “The numbers show further signs of rebalancing as investment growth and industrial production are still subdued while real retail sales have climbed higher over the past quarters. Premier Li Keqiang hinted at further stimulus in a speech to a business audience. He also suggested that rates could be cut further. This is not our baseline scenario but if we fail to see a recovery in hard data soon, further interest rate cuts could very well be on the table.”

    “Industrial production undershot expectations once again with October production up 5.6% y/y (consensus 5.8% y/y) down from 5.7% y/y in September. It is back to the low in March, which was the lowest level since 2008.”

    “The monthly increase in October was 0.5%, slightly up from 0.4% but still low. Hence, so far we only see stabilisation in industrial production on a m/m basis but not yet recovery as hinted by PMIs recently.”

    “Asset investment growth (fixed investment) increased 10.2% y/y year-to-date in line with expectations. It is, however, the lowest growth in investments since 2000.”

    “On a brighter note, retail sales beat expectations, up 11.0% y/y from 10.9% y/y in September. As inflation has been moving lower recently, the improvement is bigger in real terms and suggests consumption growth has picked up slightly. In that sense, the data today fits well with China’s goal to rebalance from investment to consumption.”

    “According to China Daily, Chinese premier Li Keqiang promised to a business audience in China to use several powerful policy weapons to boost growth. Li said the economy is experiencing a lingering slowdown and a historic transition. He hinted that China will launch initiatives to lift growth through lower taxes for businesses, help upgrade businesses, improve competition and invest in infrastructure in central and western China. Finance was also mentioned, which suggests that interest rates might be cut further to ease the burden for companies. As in the new Five-Year Plan, he said innovation should be at the core of the national strategy.”

    “We continue to look for a recovery in Chinese industry in the coming quarters with PMI manufacturing moving higher as stimulus kicks in. This has historically given support to EM assets and will be a counterweight to the drag on EM assets from Fed tightening.”

    “In terms of monetary policy, our baseline is for no more rate cuts but another cut in the reserve requirement ratio of 50bp before year-end. However, the comments from Li Keqiang and the failure of hard data to show a recovery suggests that the risk is clearly for more rate cuts in coming months.”
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