Prepare to once again hear the word "decoupling" a whole lot more.
The reason is that while the US economy is supposedly on an upward tear after the 3.5% Q3 GDP print (thanks to the war against ISIS sending defense spending soaring and a very contradictory plunge in imports which suggest US tollers are seeing far less end-demand) and despite the immediate cut to Goldman's Q4 GDP estimate from 3.0% to 2.2% after US consumer spending tumbled in September it is, for now at least - because GDP-crushing snow is just around the corner - doing better than Europe (where Germany just joined the ranks of Spain, Italy and Portgual in the deflation column), Japan, where the BOJ just crashed recovery hopes and unleashed more QE for the official reason that the economy is tanking once more due to the inability to keep inflation steady above 1%, and certainly China, whose economy - driven by the housing market slide now in its 5th month and which has sent Y/Y prices negative for the first time since 2012 - keeps contracting, as confirmed overnight by the latest official PMI data from the National Bureau of Statistics.
The Chinese data in a nutshell: overnight the official NBS PMI report indicted the October manufacturing PMI printed at a disappointing 50.8, below the 51.1 in September, and well below the consensus hopes for a rebound and uptick at 51.2.
In fact, as the Chart below shows, this was the weakest October for Chinese manufacturing since 2008.
The October data was also the weakest since April's 50.4, when the PBOC launched a concentrated credit stimulus which succeeded in briefly boosting the economy, and whose effect has, however, now almost completely faded.
Among major sub-indexes of the official PMI, most key sub-indexes showed signs of cyclical slowdown from the previous month. We view production and new orders indexes as most important as they are most closely correlated with hard economic data. Both clearly softened (Production decreased to 53.1 from 53.6, and new orders moderated to 51.6 from 52.2). The only two sub-indexes that didn't decline were employment and supplier's delivery time (Employment increased 0.2pp to 48.4 and supplier's delivery time held up). This pattern is very similar to the pattern of the HSBC PMI (though the magnitude of fall in export orders index in the official PMI is much smaller).
We believe this reflects weak demand growth in the economy despite government's loosening efforts. Export probably has not been making as much contribution to demand growth as one might expect from the very strong export data either. Production and construction restrictions aimed at reducing pollution in and around Beijing during the APEC summit suggest downside risk to November activity and our 4Q GDP forecast of 7.3% yoy (around 8.4% qoq ann, SA).
A pullback in manufacturing will test the government’s determination to refrain from broad stimulus. The economy expanded 7.3 percent in the third quarter from a year earlier, the weakest pace in more than five years.
“The biggest drivers of growth such as fixed-asset investment are still slowing,” Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd., said by phone from Hong Kong yesterday. “Heavy industries like steel and coal are contracting on lower prices, and the negative impact of the weak property market is becoming more pronounced.”
A property downturn dragged the economy to its lowest growth in five years last quarter. China will “stabilize” property-related consumption and make it easier for people to access mandatory housing savings, according to a government statement citing a State Council meeting chaired by Premier Li Keqiang. This came after the central bank on Sept. 30 relaxed mortgage rules for homebuyers who have paid off existing loans.
And, of course, Zerohedge. From a month ago:
China's economy has ground to the biggest crawl it has experienced since the Lehman crash. What's worse, and what we predicted would happen when we observed the collapse in Chinese commodity prices ten days ago, capex, i.e. fixed investment, grew at the slowest pace in the 21st century: the number of 16.5% was the lowest since 2001, and suggests that the commodity deflation problem is only going to get worse from here.
As JPM summarized earlier today, pretty much every economic data release was a disaster, missing consensus significantly, and suggesting GDP is now trending at an unprecedented sub-7%.
So instead of beating an already dead horse, we will let the charts (of what is almost surely "optimistically-goalseeked" government data to begin with) do the talking.
- Output growth of non-ferrous metals, steel and cement slowed to 8.2%, 1.7% and - 2.2% yoy respectively in September from 9.5%, 2.4% and 3.0% in August.
- Headline year-to-date FAI growth slowed to 16.1% yoy in September from 16.5% yoy in August, below the consensus of 16.3%. Real ytd FAI growth also moderated to 15.3% yoy in September from 15.8% yoy in August.
- Investment growth of local projects (88% of total FAI) edged down to 13.3% yoy in September from 13.4% yoy in August.
- Real estate ytd FAI growth moderated to 12.5% in September from 13.2% in August as home new starts remain weak.
- Retail sales growth eased to 11.6% yoy in September from 11.9% in August, but quickened in real terms due to falling CPI inflation.
- Growth of total auto sales and passenger car sales in volume decreased to 2.5% and 6.4% yoy in September from 4.0% and 8.5%, respectively in August.
- China’s CPI and PPI inflation declined to 1.6% and -1.8% in September yoy from 2.0% and -1.2% in August, below consensus forecasts. Falling inflation in China was due to slower economic growth, the anti-corruption campaign which damped consumption demand, and the decline in global oil and gas prices.
- Food inflation softened to 2.3% yoy in September from 3.0% in August, while nonfood inflation decreased to 1.3% from 1.5%.
- The yoy growth of outstanding bank loans edged down to 13.2% from 13.3% in August, meanwhile that of outstanding TSF decreased to 15.6% from 16.1% in August.
- In volume terms, growth of iron ore imports picked up to 13.6% yoy in September from 8.5% in August due perhaps to falling prices, while that of copper and crude oil imports declined to -14.8% and 7.4% yoy, respectively in September from -13.3% and 17.5% in August
- In yoy terms, the number of cities that saw new home prices down/flat/up changed to 58/2/10 in September, compared to 19/3/48 in August.
- On the demand side, the yoy growth of new home sales in floor space terms and value terms picked up to -12.1% and -10.3% yoy in September from -13.4% and -13.7%, respectively, in August. However, in ytd terms, home sales growth in both value and volume terms moderated slightly in 9M14 from 8M14.
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And so, with Europe, Japan and, now, China slowly sinking into what can be described a global period of economic slowdown, the only hope is that the US will decouple from... well... everyone, as slowly but surely seems to be happening:
Which is great, however if and when the USD-carry trade revulsion finally sets in and sends the dollar truly soaring (more on that in a subsequent article), it is not the US which will have the last laugh.