Tuesday, July 23, 2013

Li's Only Joking


Overnight has seen China return to focus and for once not in a negative way. Chinese stocks have been fading as steadily as opinion on Chinese growth prospects so the headline that Li is declaring 7% growth as the floor, leading to a 2-3% rally in Chinese stocks and a general purpose creep upwards in all things EM and carry, has been notable.

But TMM think that taking Li at his word on this is like taking the cougar at the bar on her age. If anyone thinks that Li's remark is more credible than her claim to be 28 today, someone is carrying a fake ID or is very gullible.

In our efforts to get a more realistic picture of what is going on in China TMM have resorted to progressively more exotic measures as many have been gamed. For example, the State Energy Regulatory Commission used to produce some pretty good daily data on power output that can be seen below. Sadly, we haven't seen this data since early June and doubt it is coming back - it showed very mediocre power generation growth up until then.

Stepping further away, we have been watching coal markets in Asia and the picture is very ugly. Chinese imports are down from all sources per Chinese Customs data and given this data tracks the ABARE data from Australia and Indonesian data fairly well historically we can assume it is real (for now). Things look particularly ugly in June which just so happened to coincide with a minor stroke in China's onshore funding markets.



And as has been reported elsewhere by Morgan Stanley and others, the credit quality of local corporates is not improving and debt levels are not dropping.



So, colour TMM sceptical - it's a crowded trade and due for a bounce but fundamentally speaking there isn't much to get excited about. Without a massive increase in the fiscal deficit or redistribution or exports it is hard to see where the growth pickup is likely to come from.

Looking at the response in European markets either our cynicism is mirrored by others or the summer lethargy is more pervasive than even we thought.

9 comments:

Anonymous said...

Something's probably fishy in China:

http://www.acting-man.com/?p=24615

Rossmorguy

abee crombie said...

From GMO Q2 letter

" We’re in a canoe race to the other side of the lake. We know all of the canoes are old and a bit leaky in
the best of times, and there’s a storm coming. If we knew the storm were going to break now, we’d just stay in the
cabin and laugh at everyone else as they were forced to turn around and trudge back to the cabin, sopping wet and half
drowned. But we don’t know when the storm will break or even if it might miss us altogether, so we’ve stuck an extra
guy in the middle of our boat with a bucket instead of a paddle. We know it will slow us down, but it will go a long
way to help ensure we don’t sink along the way, even if we’re resigned to the likelihood of a long slow paddle in the
rain, sitting in water up to our ankles."

Anonymous said...

Why even bother asking her age when you can enjoy her company in the short term? EMs should be OK for now for the overnight punters, but we wouldn't want to get married to them just yet.

Anonymous said...

CHIS on the bloomberg is pretty handy, and I dont think its "gamed" yet.

Anonymous said...

short IWM long EEM looks tasty, Guvna.

Leftback said...

A timely reminder of a seasonal factor that influences the unemployment statistics. Yes, folks, college students have handed over their cash and received their diplomas. For many of these lucky graduates, a place in the U3 statistic is in their immediate future.

Seasonal Factors Influencing Unemployment

The labor force expands markedly every June, so whatever the headline BLS number is, the U3 number is likely to show a blip. This will come after the Q2 GDP. Treasury shorts and dollar longs, beware.

Leftback said...

The OIH has a rolling top that meets the 2011 summer lows around $46-47. That’s classic chart resistance. With crude looking over-bought, we fancy a small punt on the OIH here.

Traditionally, energy is weak after July 4. US crude oil and gasoline consumption isn’t growing, but domestic production is. The short dollar/long crude trade isn’t what it used to be. We fancy this one here, although short energy is a trade we usually detest.6136 sibauce

Anonymous said...

Eurozone PMI Composite Output Index just above 50 in July first time since the middle of 2011. Guess gravity wells got to have bottoms too, unless its just turbulence...

No data about individual periphery countries but as normal Germany seems to be doing the heavy lifting here and the rest of the bunch still drowning. Services are drowning too and jobs contracting although on a slower pace.

Nice stuff TMM. If China starts to rain on the euro parade this will probably be just a blip and the light that now is the tunnel end is in fact another train. Then we need Draghi to do some real magic to boost demand.

Lauren Taylor said...

The numbers do not seem to be consistent. There is something questionable and I commend you for pointing it out.