Whocouldanode? Chinese GDP managed (thanks to record-breaking credit creation and QE-lite) to beat expectations of +7.2% and come in at +7.3% (still its slowest growth since April 2009). Notably this was the biggest decoupling from Bloomberg's high-frequency economic data forecast (i.e. real data) since May 2010. Despite weakness in Cement and Steel output, Industrial Production also managed to beat and actually improve (another miracle). Retail Sales missed expectations, rose only 11.6% YoY - its weakest since Feb 2006. Initial kneejerk is a lift in USDJPY, AUDJPY, TSY yields, and S&P and NKY futures... but that has now faded...
Chinese GDP beat, falls to slowest since April 2009, and decouples from Bloomberg's "real data" estimate by themost since May 2010...
Industrial production rose and beat - breaking any historical correlation with Steel and Cement industries...
For the 5th month of the last 6, Retail Sales missed and dropped to the slowest growth since feb 2006...
The initial reaction - USDJPY jerked higher, S&P Futs followed along with TSY yields...
But that has now faded...
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And here is JPMorgan's [12]CIO Michael Cembalest [12] explaining why it's not sustainable (absent moar inflationary credit impulses - and the concomittant hangover),
China is slowing, mostly due to a gradual, steady decline in private sector activity. One example: the decline in fixed asset investment (e.g., business capital spending) at private sector firms relative to firms that are state-controlled. Premier Li Keqiang’s reforms are aimed at making it easier for entrepreneurs to start private sector firms, but in the current climate, private sector investment growth continues to fall.
The Chinese central bank injected some liquidity into the domestic banking system recently, but it was only for 3 months and not meant to address the more structural issue of declining private sector demand. While export growth and job creation still look pretty good, the overall picture is one of an economy growing at 7%, and that’s with the contribution from government spending. Government spending is set to slow in the second half of the year; the authorities continue to reduce the size of the shadow banking system which extends credit; and the overheated housing market is still in decline as well when looking at national home sales and a 70-city home price average.
We expect continued weakness in Chinese data for the rest of 2014 and into next year as well.
Source: JPMorgan
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And we know just how bad that nagover can be (unless the drip of liquidity - and not reforms) is left wide open...
Charts: Bloomberg
h/t @M_McDonough







