Daily Macro: China Consumables in a Sluggish Economy and more

In this briefing:

1. China Consumables in a Sluggish Economy
2. RRR Rate Cut in China
3. FX Reserves in China
4. UK Wrap: Politically Fragmented Outlook
5. Ten Years On – Asia Outperforms Advanced Economies

1. China Consumables in a Sluggish Economy

The PBOC’s desire to loosen up China’s economy is relying on consumers to keep spending. However, as seen in the data below, consumers just are not spending. From cars, to cameras and retail, consumers are increasingly avoiding big ticket items, as China’s consumers look for breathing space.

2. RRR Rate Cut in China

The big news in Chinese finance was the PBOC announcing Friday that it was cutting the RRR rate. Rather than what you can read in the press, we want to focus on a variety of factors which may not be as widely recognized.

3. FX Reserves in China

FX reserves are up by about 10 billion dollars, which against a back drop of the size of FX and the Chinese economy is basically no change. They have been oddly flat over the past two years. Yet, the noise is really just that, the FX increase is so small that we believe it is a non-starter.

4. UK Wrap: Politically Fragmented Outlook

• Brexit: Agreement with the EU was concluded before reaching the required reassurances for parliament. A soft Brexit remains most likely, before breaking harder, but the politics is fragmenting the outlook.
• Economy: The post-referendum growth trend pace has re-established at 0.15% m-o-m, which appears to be above-potential. Inflation should temporarily slow below target despite domestic pressure building.
• Monetary policy: The BoE delivered its second rate hike in August to 0.75%. Bullish economic trends mean I expect the next hike in May-19, assuming a smooth transition becomes assured soon.

5. Ten Years On – Asia Outperforms Advanced Economies

You might be surprised to learn that in the ten years to 2017 Asia has outperformed advanced economies. Despite extraordinary monetary and fiscal stimulus and the damaging dollar-demand deflationary policies of the ECB, BoJ and BoE, the region is 188% larger in US dollar terms compared with 2007 while US dollar GDP per capita income is 170% higher. The parallel numbers for the advanced countries – the US, euro-area and Japan combined- are 19% and 13%. Asian stock markets have underperformed since 2010 but we believe that investors are still to fully acknowledge Asia’s strong growth fundamentals. Combined with cheap valuations there is significant upside for Asian equity markets.