Bear Food With Chinese Seasoning

Monday, April 02, 2012

TMM were somewhat chuffed to see their data mining and manipulation last week pretty much get the China PMI spot on. But what is the point of getting the number right if the market doesn't respond as expected? We know that China is still on holiday and so hasn't had a chance to act but the fade in Asian hours from opening highs in nearly everything "risk" is somewhat frustrating. Why does everything have to be soooo HARD? Can't we just for once have a "there's-a-good-figure-market-goes-higher" event? This morning though, trying to suggest that the data is good appears to be as difficult as arguing the origins of fossils with a creationist.

The heart of this morning's scepticism with respect to the NBS PMI centres around that old chestnut, seasonality. The trouble with this argument is that it's not exactly as if the realisation that many data series exhibit seasonality occurred suddenly overnight. Indeed, one would expect that expectations for the number embedded such seasonal adjustments, thus expecting on a seasonally adjusted basis that activity *fell*. This clearly has turned out not to be the case. Secondly, as TMM pointed out in their piece last week, there is a good amount of evidence that since 2005, the seasonal factors have been dynamic. Specifically, the 2005-2007 period appears optically to be very seasonal and the 2010-2012 period appears to not be that seasonal, if anything looking a lot like the movements in the PMIs from the rest of world. Which brings us to the 2008-9 period which is known to have caused echo effects in the X-12 seasonal adjustment process elsewhere. Indeed, the very large moves in those years mean that simply comparing the average March vs. February change is somewhat naive and biased. Next, the divergence between the HSBC and NBS PMIs, which can arguably be accounted for by considering the changing composition of Chinese growth becoming more orientated to inland cities over the past year or so.

While this is rather dry and geeky, TMM have become utterly fed up with the Mickey Mouse laziness exhibited by both punters, economists and the media as far as the analysis of the Chinese data goes. TMM's analysis that attempts to take note of the above issues by using a dynamic seasonal adjustment approach, suggests that activity moved higher by around 0.7ppts. Bears: just get over it.

But whatever TMM think or say, a mass escape of bears at the bear house in the national bear institute, Ursine city, look less bearish than the commentaries landing on their desks with respect to China this morning. But the price falls we are seeing so far are more associated to European peripherals and especially the European banks rather than Asia. Do we therefore suggest that the China PMI has been put on the backburner and a new bear toy box opened with respect to European PMIs and slowdown? Very Seasonal that. April - Don't we historically start taking a pop at Europe during April?

As TMM mentioned last week there is a regional flavour as to opinion on China so perhaps we just need to get through a complete trading day cycle before we get a true representation of reaction, but TMM are going to stand by their guns as far as China goes and if we are going to start seeing some spurious euro trashing we will play this as a regional cross trade rather than a global play. But for now .. hold fast boys.

Posted by Polemic at 12:36 PM  


"Next, the divergence between the HSBC and NBS PMIs, which can arguably be accounted for by considering the changing composition of Chinese growth becoming more orientated to inland cities over the past year or so."

My understanding is the HSBC is weighted more with medium and small companies, the other with SOEs. This would jive with the fact SOEs are grabbing an ever larger share of the economy. Also, expansionary policies favor SOEs.

That doesn't mean your short-term expectation for a recovery in metals is off, but it does mean the eventual crack up will be worse.

Bob_in_MA said...
3:38 PM  

"a mass escape of bears at the bear house in the national bear institute, Ursine city.."

ROTF, TMM. That is amusing. Made my day. Now this China bear is laughing so hard he may pee all over his fur... however let me answer your question .... (apologies in advance, lads, please don't banish me to Ursine City....)

"But what is the point of getting the number right if the market doesn't respond as expected?"

Because, my old china, good ole Mr Market is starting to recognize a huge and very tasty pile of PORKY PIES (or dumplings) with HOT CHINESE MUSTARD on when he sees one, perhaps? Yum.... delicious....

Anyway I'm glad we can discuss this instead of why AAPL and CMG are riding the f*cking escalator 0.5% higher every day. The grinding top grinds on, in all its grindiness....

Leftback said...
4:23 PM  

Panda Bears

Corey said...
6:16 PM  

The USA laws of diminishing effect of QE,(h\t Japan)...just may well be sinking in whereas China is presently in the QE cycle....I don't think that's a stretch.

I voted the chart screamed "Yours"..I always put the chart at the front and centre of my analysis.

USA Market wise?

Enough said:

Amplitudeinthehouse said...
7:11 PM  

It looks like you've got your wish today, TMM. Willy Wall Street is bidding up the Emerging Markups.

US markets think pretty much any Chinese dish is more than acceptable today, and investors are also gobbling up as much chicken tikka masala*, beluga caviar and feijoada as is humanly possible. It's a bloody BRIC-fest !!!

Still, we're not convinced. Mr Market does tend to run 'em up on the first day of the quarter, and the EMs all have some form of inflationary headwind (food, fuel or property prices) that preclude more monetary easing in those markets for the time being. So, for LB's money, it is still going to be last year's meme of DMs over EMs for a while longer, at least until commodities come back to earth.

* Yes, we know. Brick Lane....

Leftback said...
7:23 PM  


Naturally if China we're to go full scale Qeasing... then it's a lay down misere.

Amplitudeinthehouse said...
7:31 PM  

We'll leave China bashing for another day, and see what other EMs are being bashed in the blogosphere today. Looks like they have bears in the Indian financial jungles too:

India's Economic Monsoon

The problem with a new and burgeoning middle class is that once they develop a taste for buying imported goods with hot money, they keep on demanding more sugar .... but slower export growth and rising commodity prices will place limits on consumption.

India provides a particularly good example of the fallacy inherent in the "BRICs domestic market growth to save the world economy" idea.

OK, I'm back off to the woods, I've just spotted TMM coming out of the pub, carrying a cage and one of those tranquilizer dart guns....

Leftback said...
7:45 PM  

China is a consequence of Europe just as any business is inextricably linked to the fortunes of it's largest customer.
Unfortunately Europe is on the wrong fiscal path in austerity so the question as far as I am concerned is not will China be a good growth prospect ,but how will China and indeed India manage their contraction in growth in the face of limited business prospects in Europe.
My immediate thoughts on this are that we are, with lag, only now seeing the early signals in data on how this process is going to unfold.Chinese March pmi holds the strongest element of seasonality and I dare say to be taken as a positive it would have needed to be more than it was and what it was was simply not adequate as a one month sigal that a slowing data trend had changed.I would expect the slowing data trend to continue next month which will be sufficient to put the March PMI into context again.

Anonymous said...
8:17 AM  

glad as well we can find something to discuss aside from grinding S&P.. there's a whole world out there. Cheers TMM

India & China do seem to be whipping boys now. Perhaps it is overdone. Perhaps we wait for front page news on leadership change in China and then the real selling climax is in. Indian equities I think have a long way to go down. never been a cheap market

Any thoughts on ECB lowering rates? I dont get why the schatz yield is so low?

abee crombie said...
4:06 PM  

Tend to agree with the latter comments - and am once again shorting the Emerging Markups.

China, 'nuff said, we won't labor that here in case TMM bring out the Taser. India, we all know that food inflation is really a problem, and their European export markets may be in trouble. Russia, Brazil, essentially commodity plays that depend on oil/gas prices and growth in US, Europe, China. So after allowing for Monday's start of Q2 exuberance we went over from being net long yesterday to the Dark Side this morning.

Tomorrow's ADP number in the US takes on more importance than usual this month, b/c Friday's non farm lottery announcement will occur on a day when US markets are closed. Regular readers will know that LB doesn't much fancy the US employment recovery and reckons the data might start disappointing very soon. Any dumping of shares that Wally Wall Street might feel like doing would therefore have to be done before Friday.

TMM, sorry for being a massive pain in the arse this week, I owe you all a pint - which, if I am correct, I should be able to spring for. On the other hand, if I am wrong I can expect to get the Andy Carroll or Fernando Torres treatment... ("What a Waste of Money")

Leftback said...
9:16 PM  

"Why does everything have to be soooo HARD?"

This is what a secular bear market look like. Very hard for fund managers because they are swimming against the current instead of going along with it.

The very few who won't drown will have a shot at being the 21st century Ben Graham. It is all what I wish for the macro men.

Regarding the "Mickey Mouse", please understand that some people are not interested in , or aware that they are not capable of, trading the short and medium term ripples of the market. So they are still interested by your analysis, but maintain a much steadier stance in markets

Charles said...
12:39 AM  

AUD cliff diving and Nikkei falling precipitously....
(OK, I exaggerate but it has been a bit DULL lately).

Leftback said...
3:27 AM  

TMM, so how about the fall in Oz exports, particularly coal?

Coal=electricity in China, and surely we can't keep blaming things on LNY for the next twelve months...

Anonymous said...
8:44 AM  

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