Macro Thematic Monitor

 

The Shanghai Composite Index closed down -2.9% overnight to fresh 2018 lows and taking its crash to -31% January. 

 

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Chinese Reflation = still moving in the wrong direction

China’s Headline CPI (⇧+20bps to 2.5% YoY in SEP) and Headline PPI (⇩-50bps 3.6% YoY in SEP) was more of the same in that the former remained steadfast in the middle of its 5 year range of 2% +/- 100bps, while the latter remains well below the 1H17 peak in China’s reflationary impulse upon the global economy.


The disinflationary impulse continues to ripple through the global economy en masse:

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  • Indonesian Exports (⇩-282bps to 1.7% YoY in SEP; trending lower)

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  • Indian Exports (⇩-2130bps to -2.1% YoY in SEP; trending lower)

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  • Japanese Industrial Production (⇩ -200bps to 0.2% YoY in AUG; trending lower)

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  • Russian Industrial Production (⇩-60bps to 2.1% in SEP; trending lower), and

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  • Turkish Industrial Production (⇩-388bps to 1.72% YoY in AUG; trending lower).

 


BEIJING REMAINS HANDCUFFED (10/18/2018)

With respect to Chinese monetary policy, we obviously track a deluge daily/weekly/monthly data – e.g. OMO, MTLF, RRR, BPR, 7DRR, SHIBOR, etc. – but for those of you who want to boil it all down to what it actually means for economic growth on the mainland, there’s one number you need to track on a monthly basis – i.e. the annual growth rate of bank loans.

Why?

Because that’s the best way to track incremental liquidity in the Chinese economy, which remains structurally challenged from an existing-supply-of-likely-unserviceable-but-technically-not-nonperforming-credit perspective. Yesterday’s monthly monetary figures were telling in that bank loan growth actually slowed -4bps in SEP to 13.17% YoY, with the TRENDING momentum essentially flat as well. These numbers are well shy of the 15-16% average annual growth rates seen throughout Beijing’s prior liquidity wave, which persisted from late-2015 through 1H16.

Recall that said wave of liquidity helped catalyze the SOE fixed asset investment boom that rescued the “Old China” economy from the brink of collapse and ultimately catalyzed the “Globally Synchronized Recovery”, as well as Xi’s “coronation”. The latest numbers – including the sharp deceleration in M0 Money Supply growth (↓  -110bps to 2.2% YoY in SEP; TRENDING lower) continue to suggest Beijing remains handcuffed by international monetary pressures (read: #StrongDollar) from providing the degree of monetary stimulus it would need to comp cycle-peak comparative base effects over the next two quarters.

The A-Shares (↓ -2.9% overnight and ↓ -31% from its 1/29 YTD high) tells you all that you need to know about the likelihood for China coming to the rescue of global cyclical exposures in the near term.

Ask Japanese Exports, which just slowed to -780bps to -1.2% YoY in SEP – the slowest growth rate since OCT ‘16.

Hedgeye, Darius Dale 

 

 


-R.W.N II, yours in 322.

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