Despite China reporting solid economic data on Monday, with beats across the board in everything from retail sales, fixed asset investment, industrial production and GDP printing at 6.9% and on track for its first annual increase since 2010…
… despite the biggest net liquidity injection by the PBOC since mid June after the central bank injected a net 130 billion yuan, and despite yet another rebound in the Yuan, overnight China’s Shanghai Composite slumped by 1.4%, the most since December as a result of a plunge in the small-cap ChiNext index, which tumbled by 5.1%, and is now down 16% in 2017 to levels not seen since January 2015 following a fresh round of broad deleveraging amid concerns about tougher regulations and more IPOs following a high-level conference over the weekend attended by President Xi Jinping in which China hinted at the formation of a “super-regulator”.
National Bank of Hungary meets Tuesday and is expected to keep policy steady. The bank has been loosening policy quarterly via unconventional measures, which it just did at its June meeting. Further easing is possible at the September meeting. CPI rose only 1.9% y/y in June, the lowest since December and below the 2-4% target range.
Malaysia reports June CPI Wednesday, which is expected to rise 3.8% y/y vs. 3.9% in May. Although the central bank does not have an explicit inflation target, falling price pressures should allow it to keep rates steady into 2018.
South Africa reports June CPI Wednesday, which is expected to rise 5.2% y/y vs. 5.4% in May. If so, this would be the lowest rate since November 2015 and would remain in the 3-6% target range. SARB then meets Thursday and is expected to keep rates steady at 7.0%. However, we think the weak economy will lead the bank to start an easing cycle in H2 2017. That leaves September 21 and November 23.
Poland reports June industrial and construction output, real retail sales, and PPI Wednesday. Consensus for y/y readings are 3.9%, 9.8%, 6.0%, and 2.1%, respectively. The economy remains robust, but price pressures are falling and so there is no urgency to hike rates. CPI rose only 1.5% y/y in June, the lowest since December and at the bottom of the 1.5-3.5% target range.
Taiwan reports June export orders Thursday. Exports and export orders have slowed a bit in recent months and so bears watching. The mainland economy appears to be holding up well, which should be reflected in Taiwan data.
Less than a week after Reuters confirmed a previous report from the Russian foreign ministry, that Islamic State head Aby Bakr al-Baghdadi had been killed during an airstrike in Syria, conflicting reports have emerged about Baghdadi’s death, with the Iraqi interior ministry first cited by Al-Arabiya that the terrorist group head is “likely still alive and hiding near Raqqa”, and subsequently a top Kurdish counter-terrorism official echoing the same, and telling Reuters that “he was 99 percent sure that Islamic State leader Abu Bakr al-Baghdadi was alive and located south of the Syrian city of Raqqa, after reports that he had been killed.”
“Baghdadi is definitely alive. He is not dead. We have information that he is alive. We believe 99 percent he is alive,” Lahur Talabany told Reuters in an interview, adding “don’t forget his roots go back to al Qaeda days in Iraq. He was hiding from security services. He knows what he is doing.”
By now, however, it no longer matters whether the “leader” is alive or dead: after Iraqi security forces retook Mosul from ISIS control last week, and the group under growing pressure in Raqqa, ISIS is scattered and on the run. If anything, Baghdadi has become a liability to others and himself.
Recall that it was the Islamic State which originally reported Baghdadi’s death, perhaps as a means of easing the blow from the ongoing ISIS failure:
“Daesh organisation (IS) circulated a brief statement through its media in the (IS-held) town of Tal Afar in the west of Mosul, confirming the killing of its leader al-Baghdadi without giving further details,” Xinhua news agency cited Iraqi news agency al-Sumaria News as saying. “Daesh called on the (IS) militants to continue their steadfastness in the redoubts of the caliphate and not being dragged behind the sedition.”
Still, Talabany said the Islamic State was shifting tactics despite low morale and it would take three or four years to eliminate the group. After defeat, Islamic State would wage an insurgency and resemble al-Qaeda on “steroids”, he said. Which likely means more unrest in Europe.
As Reuters also adds, the future leaders of Islamic State were expected to be intelligence officers who served under former Iraqi dictator Saddam Hussein, the men credited with devising the group’s strategy.
Meanwhile, the Kremlin which originally reported news of Baghdadi’s death now appears to be backing off, with spokesman Dmitry Peskov saying the Kremlin has “no precise info on ISIL leader al-Baghdadi’s death”, adding that “conflicting reports on the matter keep coming.”
Even as stock prices climb to new highs, the data on the ground shows the economy is not gaining momentum. At 32,000, the Sensex now trades at 18.5 times the estimated one-year forward earnings. That’s a huge 20% premium to the long-term historical price-earnings multiple that India has traded at.
However, earnings growth and other high frequency indicators don’t quite match the optimism in the stock markets. Analysts expect earnings for the broader universe to fall in the June quarter.
Capex is crawling. New project announcements in Q1FY18 fell 8% year-on-year, slipping for the second quarter in a row to Rs 1.4 lakh crore. This is much lower than the average quarterly investments of the past three years, data from CMIE reveals.
Export growth is slowing. Although exports may have risen in the past ten months, they come off a low base. In June, the pace of exports moderated to just 4.4% y-o-y with non-oil exports slowing for the third consecutive month.
Loan growth remains tepid. While there is an increase in money mopped up via the bond markets, non-food growth is growing at just 6-7% and borrowings via CPs too are slowing.