Children and equity markets like pleasant surprises and, whether choreographed, or not that is what we had this morning. On Friday, speculation was rife that the reason behind the Government’s early publication of economic data (on Saturday rather than Monday) was a forerunner of an increase in benchmark Chinese interest rates (lending, deposit or both). It didn’t happen. What we did get, though, was confirmation of a still vibrant economy, albeit one in which the pace of growth is moderating - to the extent that CICC called it ‘Goldilocks’: not too hot; not too cold (and with fewer bears sitting at the kitchen table). On a more prosaic note, Merrill Lynch said GDP will expand at least 9.4% this quarter and 9.0% in Q4; and that “domestic demand is robust and the Chinese economy is heading for a smoother and softer landing than people had feared”.
Inflation remains a concern at 3.5% in August, albeit 1.8% of this was driven by agricultural pricing. Similarly, producer prices dipped from 4.8 to 4.3%. Nonetheless, a satisfactory performance here remains a vital metric.
Urban fixed asset investment also remains strong, with a run-rate of 25% (January through August), while bank lending rose for the first time in four months in August (+2.3%); as did M2, the broadest measure of money supply (+19% year-on-year in August and the first pickup in nine months). Despite this proving that there has been some financial loosening, most commentators believe the Government’s target of a 22% reduction in new lending (to Yuan 7.5 trillion) this year remains viable. That said, the debate on raising interest rates, especially for deposits, continues. South Korea, Malaysia and India already have.
Elsewhere, the Yuan hit a record high against the US dollar today of 6.7568 (correct at time of going to press); although this will, inevitably, not be sufficient for US legislators. However, the US-China Council (comprising more than 200 companies, including the likes of Caterpillar) says leave China and its currency alone. It can only see opportunity in the Country and believes tariffs and the like are “counterproductive”.
“The surprise is half the battle. Many things are half the battle, losing is half the battle. Let’s think about what’s the whole battle”. (David Mamet).
Shanghai Composite:
Today: +0.94 at 2,688.32 at close
Last week: +0.3
YTD: -18.0
Hang Seng:
Today: +1.89 at 21,658.25 at close
Last week: +1.4
YTD: -1.0
Oil futures: $77.95
Gold futures: $1245.70
Euro/$ spot: 1.2839
Headlines
- Record high for the Yuan versus US dollar
- Inflation hits 3.5%; but producer prices dip half a point to 4.3%
- China faces upward pressure on CPI from agricultural pricing, says NBS
- Industrial output tops forecast on “robust” growth
- Urban fixed-asset investment rises nearly 25% in first eight months of 2010
- New lending, rebounds and money supply unexpectedly picks up speed
- Goldilocks without the bears (?) as CICC and JPM like what they see, especially in small cap. stocks
- State economist says there is no need to raise rates; however…
- ……deposit rates should be raised, says PBOC advisor
- Swap rates rise to one month high as concerns of an economic slowdown ease
- CBRC may require core capital of 4% of assets, says China Business News
- US-China Council, including Caterpillar, is lobbying to block measures by the US on China’s currency (Ed: yes, this is correct); Stephen Roach adds warning too
- Yuan flexibility is a long term goal to meet economic needs, says Dow Jones
- China has 24 million job seekers and 12 million vacancies, reports Xinhua
- August power output surges to record due to very hot summer
- China will pass US as the largest credit card market by the year 2020, says MasterCard
- The historic China and Taiwan economic agreement took effect on 12 September
- China is also to allow individual tourists to Taiwan
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