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Asian Focus: Substance to China stimulus; Japanese orders slowing
In this Asian Focus video Yvette Roper of TradingFloor.com interviews Andrew Robinson, FX Analyst for Saxo Capital Markets in Singapore about the latest PMI data from China, plus talk of pending stimulus there which clearly has some substance to it. The interview also covers PMI data from Japan which bears some similarity to China's slowing story plus industrial production there, which is still skewed by the post tsunami effect. Furthermore, Australian purse strings are clearly tightening, recent retail sales data reveals.
May PMI data for China is seen still firm with the headline number expected at 53.3, well above the 50 contraction/expansion mark. Drilling down in the data though the positive effect is not seen as strong with new orders on the decline and Andrew expects slower or weaker data from the series ahead. Despite the obvious difference in the official data and the HSBC data due to the number and type of companies surveyed it is interesting to note that within the official data there is a small business sub-index that last month was very close to the HSBC number, revealing that the actual discrepancy between the two numbers is actually not that great after all, says Andrew.
Australian retail sales dropped 0.2 percent in April on a month on month basis. The number looks quite weak though because of an equivalent upgrade to the previous month’s data. Overall however, clearly the Australian economy, apart from the mining sector, is struggling, says Andrew, adding that it was of particular interest to see that the biggest decline was in the restaurant and café sector, suggesting less discretionary spending.
On Japan the headline PMI number for May at 50.7 was unchanged from April and virtually also the three month average of 50.8. Beneath the numbers though there is some similarity to China with new orders and export orders declining, says Andrew. On industrial production for Japan, a similar slowing effect is expected for the month of April which is seen coming in at 0.5 percent versus 1.3 percent in the previous month. The annual comparisons are still distorted by the effects of last year’s tsunami though which again is showing a slight slowdown to 13.7 percent year on year versus 14.3 percent in the previous month.
On Chinese stimulus, Andrew says there is clearly some substance to the rumours as officials have been mainly downplaying the estimates rather than denying any action. The expectation is for no more than 2 trillion yuan in stimulus, which is well below the amount provided in 2008. The form however is not likely to involve a direct hand-out but rather some boosting to lending from banks and increasing the speed that infrastructure projects are sanctioned at. On the latter, Andrew says such projects will only provide a very short-term boost to the economy as in the long term you can’t keep building bridges to nowhere and Chinese authorities will have to do something else. There is also talk of a ‘cash for clunkers’ scheme, somewhat like what was done in the US in 2008. Recently this has had a positive effect in the stock markets with automobile producers getting a bit of a boost in the last couple of days. Any increase in bank lending however will most likely coincide with a Reserve Requirement Ratio cut, says Andrew, adding that it’s highly likely there will be more positive or definite noises about stimulus coming out of the Chinese officials in the next few weeks.
See more of Andrew's Asian market commentary on TradingFloor.com
06:54 minutes
Tags: asia, australia, china, focus, forex, hsbc, industrial, japan, pmi, production, ratio, requirement, reserve, retail, robinson, roperandrew, rrr, sales, stimulus, tradingfloor.com, yuan, yvette