by Zarathustra, Also Sprach Analyst:
All major macro data from China over the last 2 days have been disappointing.
The third quarter started on a surprisingly weak note for China despite all the talks (and hope) on stimulus and monetary policy easing.
The macro data pretty much confirm our view that economic growth did not reach a bottom in the second quarter as the consensus used to believe.
If anything, the economy seems to be worsening somewhat again.
After these weak numbers pointing to hardly any recovery, we believe that the market will step up their talks on further and more aggressive stimulus both on fiscal and monetary sides, and we suspect that the consensus will be shifting from believing in a Q2 bottom to a Q3 bottom (which has been happening for a few quarters now: the economy will recover next quarter, said everyone in every quarter).
There is very little doubt, to our mind, that this series of weak numbers will put more pressure on the government to ease policy further. However, let us review a few facts: the People’s Bank of China has already cut interest rates twice and RRR has been reduced three times since late last year. The government has expressed their intention to bring future investment projects forward, and now that growth is their top priority.