Sat, 27th May 2017

Anirudh Sethi Report


Archives of “Economy” Category

China says Moody’s downgrade over-estimates the difficulties facing economy

Chinese MOF official responds to Moody’s ratings downgrade 24 May

Over-estimates or just a reality check?

  • downgrade under-estimates China’s ability to deepen supply side reform

Ah yes, the stuff we hear trawled out every day almost.

  • MOF expects China’s economy to maintain stable and relatively fast growth
  • China’s govt debt will maintain reasonable pace of growth
  • China’s govt debt risks will not change dramatically in 2018-20

Right on cue. The same mantra. Say it enough times and it might come true seems the plan here.

  • Moody’s latest credit rating assessment based on inappropriate methodology

Unlike the Chinese data releases then. Not.

China not as impressive as they would like to think say Moody’s

China (April) inflation: CPI 1.2% y/y (expected 1.1%) PPI 6.4% y/y (expected 6.7%)

The inflation figures from China for April

CPI  1.2% y/y
  • expected 1.1%
  • prior 0.9%
  • Up 0.1% for the m/m figure
  • Food inflation down 3.5% y/y (down 0.6% for the m/m)
  • Non-food inflation +2.4% y/y, +0.2% m/m
PPI  6.4% y/y
  • expected 6.7%
  • prior 7.6%
  • the PPI is down 0.4% for the m/m
We were kept in suspense for a few seconds there, data slow to come out

Half Of Canadians Have $200 Or Less In Savings

Two months ago, when quoting the CEO of cell phone insurer Assurant, who appeared on Bloomberg TV to discuss business trends, one of his quotes caught our attention: “the reality is, half of Americans can’t afford to write a $500 check,” Colberg said. We decided to look into the CEO’s claim about the woeful state of US finances. What we found is that according to a recent Bankrate survey of 1,000 adults, 57% of Americans don’t have enough cash to cover a mere $500 unexpected expense. Turns out the CEO was right. And while that may appear dire, it is a slight improvement from 2016, when 63% of U.S. residents said they wouldn’t be able to handle such an expense.

The Bankrate survey findings echoed research published last year by the Federal Reserve, which found that 46% of respondents said they would be challenged to come up with even less, or $400, to cover an emergency expense, and would likely borrow or sell something to afford it. When the Fed asked what types of emergency expenses Americans had actually faced in the last year, more than one out of five cited a major unexpected medical expense. The average expense: $2,782, or almost seven times higher than the Fed’s hypothetical $400 surprise bill.

How does this stunning statistic compare to some other developed nations?

It turns out that the state of half of US finances, deplorable as it may be is positively shining, not to mention “twice as good”, when compared to the country’s neighbor to the north, where a recent Ipsos survey on behalf of accounting firm MNP, found that more than half of Canadians are living within $200 per month of not being able to pay all their bills or meet their debt obligations. Needless to say, if $500 in savings is bad, half that amount is outright bizarre.

China trade balance (April): CNY +262.3bn (expected CNY 197.2bn)

China trade balance for April: surplus of 262.3 bn yuan

  • expected CNY 197.2bn, prior was CNY 164.34bn

Exports +14.3% y/y

  • expected 16.8%, prior was 22.3%

Imports +18.6% y/y

  • expected 29.3%, prior was 26.3%

Bigly surplus, much more bigly than expected. But exports and imports both miss expectations.

For the year-to date:

  • Trade surplus 715bn yuan
  • Exports +14.7 % y/y
  • Imports + 27.8% y/y

China Reserves Jump Most In 3 Years to $ 3.03 Trillion

In all the drama surrounding the French elections, few noticed the PBOC’s announcement that China’s FX reserves rose for the third straight month in April, increasing by $20.45 billion to $3.03 trillion, more than the $11 billion expected and the single biggest monthly increase in three years going back to April 2014, on the back of a weaker dollar and increasingly more draconian capital controls on outflows.

Cited by the WSJ, some economists attributed April’s increase to a dollar that continued to decline in the past month especially after Trump said the U.S. currency “is getting too strong.” The value of other currencies in China’s reserve basket, including the euro, the British pound and Japan’s yen, similarly played a significant role in the rise, said Yan Ling, an economist with China Merchants Securities.

Besides USD softness (USD has weakened against the CFETS basket by over 2% year-to-date through April) and perhaps stronger RMB sentiment, the capital flow management measures introduced over the last several months have also contributed to the slowdown in outflows, Goldman speculated in a Sunday note. That could reverse, as there may be incremental relaxation of the capital account as the flow situation has improved and an overly tight capital account could hinder legitimate international trade and the authorities’ long-term RMB internationalization goals.

China – April Caixin Services PMI 51.5 (prior 52.2) & Composite 51.2 (52.1)

Caixin Services and Composite PMIs for April

From the Markit / Caixin report (bolding is mine):
  • Caixin China Composite PMI data (which covers both manufacturing and services) signalled a further slowdown in growth momentum at the start of the second quarter
  • This was highlighted by the Composite Output Index posting 51.2 in April, down from 52.1 in March, and the lowest reading for ten months
  • Latest data saw a loss of momentum across both the manufacturing and service sectors during April
  • While manufacturers recorded the weakest rise in production since last September, service providers saw the slowest increase in business activity for 11 months
  • Weak services growth was illustrated by the seasonally adjusted Caixin China General Services Business Activity Index registering at 51.5, down from 52.2 at the end of the first quarter, to signal only a modest rise in activity levels
  • Although business activity growth eased in April, the amount of new business placed with service providers expanded at a quicker pace in April
  • Some panellists mentioned that new products and improving market conditions had boosted new order intakes
  • That said, the rate of expansion remained weaker than the historical series average
  • Meanwhile, manufacturers saw growth in new work ease for the second successive month to a marginal rate
  • At the composite level, total new business increased at the softest pace since last September
  • Services companies continued to add to their payrolls at the start of the second quarter. However, the rate of employment growth eased to the weakest in 2017 so far and was moderate overall. At the same time, manufacturers continued to cut their staff numbers in April, with the rate of decline quickening to a three-month record. As a result, composite employment fell for the first time since the end of 2016, albeit only slightly.
  • Data indicated a lack of pressure on operating capacity across services companies, as shown by a renewed fall in backlogs of work. Though marginal, it was the first time that unfinished workloads had fallen across the sector since last September. In contrast, outstanding business continued to rise across the manufacturing sector, though only modestly. Subsequently, composite backlogs of work accumulated at the slowest pace in a year.
  • Cost pressures eased across both monitored sectors in April. Service providers registered only a modest rise in input costs that was the weakest in six months. Manufacturers meanwhile saw a rate of input price inflation that, though solid, was the softest recorded since last September. Higher raw material costs were cited as a key factor pushing up cost burdens across both sectors. Overall, composite input prices increased at the slowest rate in seven months. Similar trends were seen for prices charged in April, with both manufacturing and services companies raising their prices. Though marginal, April marked one of the fastest rates of charge inflation seen across the service sector for three-and-a-half years. However, it was the weakest rise in factory gate prices recorded since last August.
  • Chinese companies generally held positive growth expectations for the year ahead in April. That said, the overall degree of positive sentiment moderated to a five-month low. Weaker confidence at the composite level reflected reduced optimism across both sectors, with manufacturers the least positive towards the one-year business outlook.
Commenting on the China General Services PMI data, Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group said:
  • “The headline Caixin China General Services PMI fell for the fourth straight month in April to 51.5.
  • It marked the weakest reading since May last year and was down 0.7 points from March.
  • The sub-indexes of input costs and output prices dipped, while the sub-index of new business went up marginally.
  • Growth in both manufacturing and services decelerated in April, reflecting a clear slowdown in the expansion of the Chinese economy

Q1 2017 Eurozone GDP flash 0.5% vs 0.5% exp q/q

Q1 2017 Eurozone GDP flash data report 3 May 2017

  • Prior 0.4%. Revised to 0.5%
  • 1.7% vs 1.7% exp y/y. Prior 1.7%. Revised to 1.8%
  • EU28 states 0.4% vs 0.6% prior q/q
  • 1.9% unch y/y

Bang on the money expectation wise but actually worse y/y when you factor in the higher revision.

This flash report is seriously lacking in detail. Only 6/11 countries have published data for this report.

EURUSD doing nothing at 1.0910.


BOJ leaves monetary policy unchanged, boosts outlook for Japan economy

BOJ keeps monetary policy steady

  • Maintains short-term interest rate target at -0.1 pct
  • Maintains 10-year JGB yield target around zero pct
  • Leaves unchanged pledge to buy JGBs more or less at current pace so its holdings increase at annual pace of around 80 trln yen

BOJ  raises economic assessment

  • Japan’s economy turning towards moderate expansion
  • Economy, price risks tilted towards downside
  • Output, exports on upward trend
  • Japan economy likely to continue moderate expansion
  • Momentum towards hitting 2 pct target lacking
  • Long-term inflation expectations remain on weak note