Chinese economy cools down in April

Summary:

• A set of macroeconomic readings for April came in well below expectations
• Part of volatility in industrial production could have been due to VAT cuts, NBS says
• Chinese equities on the rise as weaker data may signal more stimulus ahead

Comeback to normality

In March the Chinese economy surprised to the upside producing a stunning rate of growth of industrial output. However, this could have been just one-off rise caused partly due to VAT cuts taking effect on April 1. Such a notion was shared by the China’s National Bureau of Statistics in its statement following a bag of data for April. First of all, industrial production rose only 5.4% in annual terms, missing the median estimate of a 6.5% increase and down from 6.5% reached in March. Investments in fixed assets rose 6.1% on a year-to-date basis, below the expected rate of growth equal 6.4%. In turn, retail sales increased 7.2% compared to the same period last year, a big miss in comparison to an estimated increase of 8.6%. As we noted above, increased volatility in the data between March and April may have been caused by VAT cuts. The same picture was seen in case of trade data showing a decrease in imports in March and then a huge rebound in April. Taking into account the recent steps undertaken by Donald Trump one may suppose that China will show another notable rise in imports for May due to increased purchases in the time before tariffs took effect. One of the few bright spots in today’s releases in a level of investment in the real estate market which rose rose 11.9% on a year-to-date basis through April.

By and large, the data for April shows the Chinese economy cooled down after a pick-up in March and this deceleration came even before the trade war further escalated. In our view it could be a reason for Beijing to step up stimulus in coming months to shore up and stabilize economic growth. In this regard it is also worth mentioning a continued divergence between public and private investments in fixed assets. In April the former rose 7.8% YoY while the latter increased 5.5% YoY, the slowest pace since December 2016.

Real estate investments have decoupled from the total investments in fixed assets in recent months. Source: Macrobond, XTB Research

Market reponses

Chinese equities are rising this morning despite a set of disappointments in data, this could be due to expectations that Beijing will be forced to implement more stimulus in the foreseeable future. The Shanghai Composite is going up 1.5% while the Hang Seng (CHNComp) is rising 0.9% at the time of writing. In the FX market one may also notice benign movements and just tiny underperformance of the Aussie dollar. In turn, in the broader currency market the Turkish lira is falling notably another day in a row being under political pressure after the elections’ outcome in Istanbul were nullified.

The Chinese stock market is rebounding on Wednesday despite a set of weak macroeconomic prints from the domestic economy. Better performance in the US may also have contributed to improved moods in Asia. The major resistance is placed at around 11 100 points and it will be the level for bulls to watch in the near future. Source: xStation5

In the other news:

• Theresa May said it will bring a Brexit agreement back to the Parliament at the beginning of June even as talks with the Labour has not yielded any agreement; meanwhile Corbyn added that it will not back a deal without further concessions

• The Australian wage price index for Q1 stayed at 2.3% YoY