China's "V-Shaped" Recovery Stalls As Big Three Macro Signals Disappoint

As a second wave of COVID-19 begins to spread in both Beijing and Guangzhou (with a warning from a Vice Premier of a high risk that the outbreak spreads and new figures show Beijing reported 36 new cases on June 14), China's miraculous "V-shaped" recovery was expected to continue.

Early in the evening, China home prices beat expectations rising at a 0.42% MoM clip - the best since Oct 2019...because who wouldn't want to be bidding up prices in China right now...

Source: Bloomberg

Earlier in the month, the manufacturing PMIs suggested some further stabilization, though not much of a strengthening last month. Exports dropped, though by less than anticipated, at -3.3% year-on-year, while imports tumbled hard, with a 16.7% slide.

And then the big China data dump hit:

  • Industrial Production -2.8% YTD YoY (slightly better than the expected 3% drop and an improvement on last last month)

  • Retail Sales -13.5% YTD YoY (matched expectations and improved from the 16.2% drop last month)

  • Fixed Asset Investment -6.3% YTD YoY (worse than the expected 6.0% drop but an improvement over last month)

  • Property Investment -0.3% YTD YoY (better than the 0.8% drop expected and a big improvement from the 3.3% drop last month)

  • Surveyed Jobless Rate 5.9% (as expected and better than the 6.0% last month)

However, on a straight YoY basis - all three of the "big" ones missed:

  • China Retail Sales -2.8% Y/Y, Exp. -2.3%

  • Fixed Investment -6.3% Y/Y, Exp. -6.0%

  • Industrial Output 4.4% Y/Y, Exp. 5.0%

The immediate takeaway perhaps is that China’s economy continues to improve (after the crushing Q1 blow due to COVID-19 containment-driven shutdowns) but that pace of recovery may not be living up to expectations.

And as Chris Anstey, Bloomberg's Managing Editor, Asia Cross-Asset Markets, warned, it's "hard to see how GDP comes in positive for the second quarter, now that we’ve got two of the three months worth of data."

Of course, none of this should be a massive surprise as, once again, China has injected unprecedented amounts of credit into the economy to keep the mirage of growth alive and maintain a semblance of social cohesion...

Source: Bloomberg

The question is - what happens when the second wave (or third) hit and even more so-called "stimulus" is needed?