If you were wondering what was the cause of the stabilization in the Chinese PMI’s last week for March, the loan data reported today was literally off the charts. Aggregate financing totaled 2.86 Trillion yuan, well more than the estimate of 1.85 Trillion. Of this, bank loans increased by 1.69 Trillion, 440b more than expected. To smooth out the January/February Lunar New Year impact and the month after, total loan growth rose 40% y/o/y. Bank loans are up 19.5% ytd y/o/y. Household borrowing was particularly strong, rising by 460b yuan, the biggest increase in two years. Corporate bond issuance was also up solidly as was local government bond issuance. Money supply growth was higher by 8.6% y/o/y, above the estimate of up 8.2% and the quickest since February 2018.
Bottom line, the world needs a strong economy and growth in China but this economy, which was already hooked on debt, just ramped up its addiction to the credit juice. If you can tell me how this ends well, I’m all ears because I’m bullish on China long term. This data came out after the Chinese stock market closed.
Before the stock market closed, which was unchanged, China also reported trade data. Exports jumped by 14.2% y/o/y, well more than the estimate of up 6.5% but imports (many of which contribute to eventual exports) dropped by 7.6% vs the forecast of up .2% and that’s the 4th straight month of declines. Exports to the US were up just 3.7% but were pretty solid to Europe, up 24% and the rest of Asia. The question I can’t answer is how much of the March exports were pent up shipments after the February Lunar New Year. Smoothing out the noise, exports were up 1.4% in Q1 y/o/y while imports dropped by 4.8% y/o/y. And that drop in imports might have quelled the enthusiasm in the upside in exports in the eyes of the Shanghai comp which as stated was flat.
Let’s start quantifying what the economic overseas slowdown in the monthly data translates into. Singapore’s economy in Q1 slowed to a 1.3% y/o/y gain, one tenth less than expected, down from 1.9% in Q4 and matches the slowest pace of increase since Q3 2012. Manufacturing contracted in the quarter driven by declines in electronics and engineering. The Singapore Straits stock market was unchanged overnight in response.
Industrial production in February in the Euro area wasn’t as bad as estimated. It was down .2% m/o/m, 3 tenths better than expected and January was revised up by 5 tenths to an increase of 1.9%. On a y/o/y basis though, it is still down 4 straight months for the first time since 2012. While February data is old news at this point, European markets are rallying with the DAX in particular liking the China loan data. The euro is also rallying and sovereign bond yields are higher across the board which is in turn lifting US interest rates. The German 10 yr yield is positive again at .04%.