Chinese data disappointed markets again in May. Here’s a quick round-up:
The key takeaways:
- The latest data shows that domestic demand remains weak and economic growth is likely to be sluggish in the second quarter.
- The export number reflected the “effectiveness of the government’s new measures targeting disguised arbitrage flows,” according to Societe Generale’s Wei Yao. Is also showed weakening demand from other Asian economies. Import data shows “limited improvement” in domestic demand.
- The credit data still shows “fairly accommodative monetary conditions,” according to Yao, but she thinks May signals the beginning of a tightening trend.
- We previously wrote of the spark in Shibor and the liquidity squeeze last week, Yao warns that this wasn’t just because of the Dragon Boat Festival, and that it also suggests a decline in capital inflows. “We expect this liquidity problem to persist and negatively affect economic growth as well as the yuan in H2.”
- Fixed asset investment growth slowed for the fourth straight month.
- Retail sales were the only real “positive” data, since easing inflation means retail sales grew at “the fastest pace in five months.
- The manufacturing sector continues to show “softness” and the employment sub-index in the official PMI has been below 50 for thirteen straight months. A reading below 50 indicates contraction.
Bottomline: Most economic indicators missed expectations. The latest data continues “to paint a picture of soft domestic demand and general growth deceleration,” according to Yao.
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