Having dropped over 10% in the previous 2 days, what better way to get the speculative frenzy of Chinese housewives levered up and buying stocks again than terrible macro data. With China HSBC Manufacturing PMI printing 49.2 (the 3rd monthly contraction in a row) and China's official Services PMI tumbling to its lowest since Dec 2008, the 'bad' news seems to have been greeted wondrously as Chinese stocks are up 2-4% on the news. CHINEXT back to fresh highs, Shenzhen is outperforming, and Shanghai and CSI-300 are all pushing higher. Add to this the news that the CSI-300 its rebalancing some positions and the 'correction' in China is now old news...
Bade news is good news for dip-buying Chinese housewives...
[7]
Not only is the bad news bad enough to be good, but the rumors of moar stimulus are also present...
China’s Ministry of Finance may set additional quota of 500b-1t yuan for local governments to swap debt into municipal bonds, according to people familiar with the matter.
Plan needs State Council approval, according to the people, who asked not to be identified because deliberations are private
Finance ministry said March 8 govt would permit as much as 1t yuan of high-yielding debt to be converted into municipal bonds
However, while the market is juiced on the apparent weakness, Goldman sees pockets of strengths (for bulls to be worried about)...
China’s official May manufacturing PMI headline inched up, although it was marginally below market expectations. The breakdowns of the sub-components were more positive than the headline with the two most important components (based on the past correlation with hard data such as IP)--new orders and production--showing more meaningful rebounds (up 0.4 and 0.3 points respectively). These rises were mainly offset by a move in the supplier delivery time sub-index (which we do not generally regard as a particularly useful indicator); the employment sub-index also inched up and the raw materials inventory index held up.
Markit/HSBC manufacturing PMI May final reading was also released this morning. The May final reading was 49.2, up slightly from 49.1 in the flash reading, and also improved compared with April final reading of 48.9.
[8]
Official non-manufacturing official PMI (which covers the construction and service sectors) moderated to 53.2 in May, from 53.4 in April, the weakest reading since the global financial crisis: Service sector PMI decreased to 52.0 from 52.4 in April, while construction PMI increased to 57.9 from 57.5.
[9]
Today's data showed early signs of a recovery in the economy amid continued policy loosening. However, we do not believe these are enough to change the overall policy direction and believe the government will likely release further loosening initiatives in the coming months until there are consistent signs of a significant growth recovery. The recent repo operation by the PBOC (which drained liquidity) likely reflected a fine-turning in controlling the degree of looseness as opposed to a change in policy direction.
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Meanwhile, in Yunnan Province...
- CHINA TO HOLD LIVE-AMMUNITION DRILL IN YUNNAN PROVINCE: XINHUA
During the exercise, all types of aircraft without approval shall not enter the airspace, into Gengma county, vehicle Zhenkang border exercise area, please obey traffic control personnel. Exercise does not affect normal production and life of the masses. To listen to local people and local governments participating troops command, exercise control without approval shall not enter the area. Exercise until further notice.
[10]
In accordance with international practice and the relevant agreements between China and Myanmar armed forces, I informed the Myanmar authorities to matters I organized military exercises.
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So... bad data, more stimulus, and warmongery... BTFD!
