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Chinese activity has slowed sooner than expected; the reopening rebound has failed to gain traction.
Supply-side stimulus measures are the wrong prescription for an economy lacking demand.
The PBoC delivered surprise easing yesterday, but it looks half-hearted, and will achieve little.
Chinese money growth was better than expected in July, but credit growth disappointed.
Private sector loan demand looks ever weaker, suggesting a limit to gains from monetary easing.
The PBoC is preparing to pare back, with financial stability risks the most likely consideration.
China’s PMIs fell in July, reversing the June bounce, as the gains from reopening were exhausted.
Other sources of demand are few and far between, with stimulus efforts limited in scope and ambition...
...and global demand on the wane amidst multiple headwinds, as clearly shown by Korean export data.
Japan’s Tokyo CPI inflation was marginally stronger than expected, but still driven by cost-push factors.
Yen weakness should relieve pressure on the BoJ, and confirms an outlook of policy stability into 2024.
China’s Politburo has emphasised zero-Covid over growth, with few signals of significant stimulus.
Markets have responded optimistically to news of a
Chinese property rescue fund...
...But the sums involved are too small to save the sector, and likely have more modest aims.
The growing role of the central government is nonetheless an encouraging signal; more is needed.
China’s loan prime rates were left unchanged on Wednesday, continuing the PBoC’s passive streak.
Monetary easing would have little effect at the moment, with loan demand falling.
Credit is increasingly being used to plug balance sheets, rather than support productive activity.
Official data came closer to the truth than expected, showing a very weak Q2 for Chinese GDP.
June activity data showed a stronger bounce than anticipated, but this seems unsustainable.
Stimulus remains unequal to the task of reviving growth, and the target now looks doomed.
More of a slowdown for GDP than expected
A strong month for manufacturing, but momentum is fading
Subsidies pulled forward retail sales growth
Property continues to weigh on fixed asset investment
The reopening bounce for real estate proved underwhelming
We think China entered a balance sheet recession in Q2, and policy needs recalibrating to fix it.
The combination of the property downturn, tech crackdown, and zero-Covid, have hit asset values.
Balance sheet repair takes time, and breaks monetary transmission; fiscal support is needed.
Japanese manufacturing slowed further in June, likely reflecting weakening global demand.
The service sector extended its recovery from the Omicron-induced lows, but will peak soon.
Price pressures rose further, but the labour market still looks soft, so no change likely from the BoJ.
China’s property market took another tumble in May, despite policy efforts to steady the ship.
Buyers are unlikely to return while so many developers look fragile, and employment is under pressure.
Real estate will be a headwind to economic growth for the rest of the year, and likely beyond.
A better number, but worse composition
Employment—the ultimate goal of China’s growth targets—fell further in May, despite reopening.
We expect further support to be rolled out until the situation shows a sustained improvement.
Price pressures still look modest, and consumer inflation likely edged only slightly higher in May.
Chinese PMIs rose in May, but are still sub-50, signalling month-on-month declines.
We expect a return to growth in June, as zero-Covid restrictions ease further, but it will be gradual.
The latest stimulus announcements provide a touch of new money, but still look lacklustre.
Japanese flash PMIs for May show a domestic recovery facing headwinds from external factors.
The most obvious culprit is China’s zero-Covid policy, with restrictions loosening only slowly.
New stimulus from China is underwhelming, but, importantly, contains new money this time.
Japanese GDP shrank in Q1, thanks to Covid at home, and abroad, but should recover in Q2.
Both consumption and investment have scope for significant catch-up, aided by fiscal stimulus.
Chinese house prices fell again in April, as attempts at shoring up the sector struggle to find purchase.
Japanese growth should bounce back in Q2
China’s property sector is still deteriorating
We are lowering our Chinese GDP forecast, as the data for April were closer to reality than expected.
Prolonged zero-Covid restrictions risk permanent economic scarring, limiting any rebound.
China’s property sector is a separate—and over- looked—drag on activity, and set to persist.
The PBoC has adopted new language in the wake of a slowdown in bank lending...
...But we think this is unlikely to signal a sudden pivot in monetary policy, given other constraints.
The PBoC has no choice but to accept a higher debt ratio, unless it wants to deepen the recession.
China's currency is finally succumbing to pressure from multiple fronts, and has further to fall.
The renminbi poses a key constraint to PBoC policy, which Beijing will ultimately override.
April export data from Korea show that China's bat- tle with Covid will weigh heavily on global trade.
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