Monday, April 14, 2014

China Is Deflating (excerpt)

The news out of China was mostly bad last week. On Wednesday, we learned that the country’s exports, on a seasonally adjusted basis, rose 11.0% m/m during March, recovering less than half of February's 24.2% plunge. Imports dropped for the second consecutive month by a total of 18.7% to the lowest reading since April 2012.

While the CPI edged up to 2.4% y/y during March, the PPI continued to deflate with a drop of 2.3% y/y, the 25th month of such negative readings. Our new publication China Inflation & Deflation shows that PPI deflation is widespread, confirming that there is relatively weak demand and plenty of excess industrial capacity in China.

On Friday, the Chinese government failed to sell about a quarter of a one-year bond offering. This “bond failure” was attributed to the unwillingness of the finance ministry to offer a higher yield to attract buyers.

On Thursday, following the release of the disappointing trade figures, Premier Li Keqiang said, “We will not resort to short-term stimulus policies just because of temporary economic fluctuations and we will pay more attention to sound development in the medium to long run.” He also said that the government’s target of "about" 7.5% GDP growth this year was flexible, and Beijing would not act to pump up growth as long as “there is fairly sufficient employment and no major fluctuations.”

Today's Morning Briefing: Valuation Correction. (1) Good news isn’t helping stocks. (2) Bullish FOMC minutes didn’t work last week. (3) Momentum meltdown reduces risk of broader melt-up/meltdown. (4) Reiterating 2014 by the end of 2014. (5) FSMI at cyclical high. (6) Latest Chinese data show slower growth with industrial deflation. (7) Ukraine turning deadly. (8) Earthquake for fracking? (9) What’s behind the valuation correction? (10) High P/Es not just in Biotech and Internet stocks. (11) Global MSCI volatility. (12) “The Lunchbox” (+ +). (More for subscribers.)

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