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Chinese Stats Suggest that Activity Is Accelerating

After a very weak H1 2013, several data confirmed that Chinese activity is recovering and this trend could be sustained in the coming months thanks to a global recovery, an increase of government spending and an accommodative monetary policy.

 

1/ The price of basic materials shows that demand has become stronger since the end of June which suggests an improvement of industrial production:
- Imported Iron Ore Prices rose 14% since the end of June while Domestic steel prices increased by 9.5%.
- Copper prices is still up 3.2% on the same period.

 

Source: Bloomberg

 

2/ This move was confirmed this morning by the rebound of imports in July:
- Imports Y/Y: +10.9% v -0.1%e (-0.7% prior).
- Jul Iron Ore imports record 73.1M tons, +26.4% y/y, record high > June Iron Ore imports 62.3M tons, +6.8% y/y.
- Jul Copper, Product imports 410.7k tons v 380.0K tons m/m, +12% y/y > June Copper, Product imports 379.9k tons, +9.7% y/y.

 

3/ Exports also rose in July thanks to the recovery in EU and acceleration in US:
- Exports Y/Y: +5.1% v +0.5%e (-3.1% prior).
- Exports to US: 5.2% y/y in July > -5.4% y/y in June.
- Exports to EU: 2.8% y/y in July > -8.3% y/y in June.

 

4/ The main indicators (Baltic Dry Index, Global PMI) suggest that global growth is also accelerating:
- On a Y/Y basis (MM-20 days), Baltic Dry index turned positive in July and rose 18% yesterday.
- JPMorgan’s Global Manufacturing PMI edged up to 50.8 in July from 50.6 in June.

 

5/ Government spending will accelerate in H2. As an example, State-owned railway giant China Railway Corporation (CRC) has announced a plan to raise fixed-asset investment to 660 billion yuan (106.5 billion U.S. dollars) this year to boost railway development.

 

6/ Since the end of June, PBOC has adopted a more accommodative policy and could cut RRR in the coming months:
- Today: PBoC to issue CNY15B in 14-day reserve repos in today’s session; For the week, injecting CNY20B v CNY136B in prior week.
- On August 2: China PBoC Q2 Monetary Report: Reiterates to continue to implement monetary policy and fine-tune action when necessary via numerous tools (including RRR).

 

Chinese Data Released on Sunday Showed Subdued Activity Across All Segments of Economy

Several data published on Sunday confirmed evidence that Chinese economy lost growth momentum in May. Domestic demand especially private and public investments failed to compensate the fall of exports  as factory output increased 9.2% YoY in May down from 9.3% in April and urban fixed assets investment reached 20.4% Ytd (8-month low).

 

More details from Business Insider:

 

“First, industrial production climbed 9.2% on the year, slightly below expectations for a 9.4% rise. Industrial production in May was led by heavy industries, with steel products up 11.3% year-over-year (YoY), up from 8.1% in April. Auto production slowed to 15.7%, from 18.3%, according to Bank of America’s Ting Lu.

 

Second, fixed asset investment (FAI) was up 19.9% on the year, and year-to-date FAI was up 20.4% on the slightly below expectations for a 20.5% gain. Remember FAI is a good gauge of a country’s investment activity. A breakdown of FAI activity showed that manufacturing FAI eased to 16.5%, from 17.9% because of “sluggish” external demand. Railway FAI slowed significantly to 24.2% YoY, from 62% in April. But year-to-date railway FAI was up 24.5%, compared with -41.6% last year for the same period. Planned investment, which is a leading indicator of FAI eased to 15.4%, from 17.9%. And finally, property FAI fell to 19.4%, from 23.2% the previous month.”

 

Finally, note that in a context where CPI and PPI also slowed in May to respectively 2.1% YoY (against 2.4% YoY in April) and -2.9% YoY (against -2.6% in April), PBOC could only choose to lower exchange rate (Yuan/USD at all time high) because money supply increased by 15.8% YoY in May (above the official target of 13%) and housing prices have rebounded sharply since last summer.

US Total Vehicle Sales Should Be at or Above 15 million SAAR in May

Automakers will release May vehicle sales next Monday (June 3) and currently, analysts estimate May sales to be at or above 15 million (seasonally adjusted and annualized). It will represent an increase compared to April when sales slowed to their lowest monthly pace (14.92 million) since last autumn.

 

Here are some forecasts from specialists:

 

1/ Edmunds: Car Sales Expected to Get Back on Track in May, Says Edmunds.com

 

“Edmunds.com, the premier resource for car shopping and automotive information, forecasts that 1,420,937 new cars and trucks will be sold in the U.S. in May for an estimated Seasonally Adjusted Annual Rate (SAAR) this month of 15.1 million light vehicles. The projected sales will be a 10.6 percent increase from April 2013 and a 6.5 percent increase from May 2012.” … “May sales quickly chased away any of last month’s concerns that the auto recovery is stalling”

 

2/ TrueCar: May 2013 New Car Sles Expected to Be Up Almost Nince Percent Accordiing to TrueCar; May 2013 SAAR at 15.2M, Highest May SAAR since 2007

 

“For May 2013, new light vehicle sales in the U.S. (including fleet) is expected to be 1,435,495 units, up 8.5 percent from May 2012 and up 12.1 percent from April 2013 (on an unadjusted basis).” … “The May 2013 forecast translates into a Seasonally Adjusted Annualized Rate (“SAAR”) of 15.2 million new car sales, up from 14.9 April 2013 and up from 13.9 million in May 2012.”

 

3/ JD Power: J.D. Power and LMC Automotive Report: May New-Vehicle Retail Selling Rate Expected to be 1 Million Units Stronger than a Year Ago

 

“Robust new-vehicle retail sales in May are the driving factor of returning total sales above the 15-million unit selling level for the month, according to a monthly sales forecast developed by J.D. Power & Associates’ Power Information Network”

 

4/ Wards: May Sales Should Return to Trend

 

“Steadily improving economic factors, including rising consumer confidence, should help boost May U.S. light-vehicle deliveries back to the current 6-month sales rate after an April dip in the seasonally adjusted annual rate, a new WardsAuto forecast says.” … “U.S. auto makers are expected to sell 1.43 million cars and light trucks in the month, equivalent to a 55,127-unit daily rate over 26 selling days, a 7.8% improvement from year-ago that also had 26 days.”

 

5/ Kelley Blue Book: New-car Sales To Improve 6 Percent In May With Help From Memorial Day Weekend Sale Events

 

“New-car sales will hit 15.0 million seasonally adjusted annual rate (SAAR) in May, which is an expected 6 percent year-over-year improvement, according to Kelley Blue Book www.kbb.com, the leading provider of new and used car information.”

 

This rebound in sales is coherent with some articles which underlined that U.S. automakers accelerated production lines and, in some cases, even canceled the North American industry’s traditional summer factory shutdowns to meet strong demand.
 
As a consequence, in May, we can expect:
 
1/ an increase of industrial production
2/ a rebound of retail sales
3/ some hiring in the auto sector