China’s February economic data not as bad as it seems

The data barrage out of China joins the February releases thus far, coming in mixed. While the industrial production miss continues to tell the story of slowdown, the dent had been limited with the lookout for policy support.

Event Name Actual Reuters Poll Prior
China’s industrial production (Feb) YoY YTD 5.3 5.5 6.2
China’s retail sales (Feb) YoY YTD 8.2 8.1 4.0
China’s fixed asset investments (Feb) YoY YTD 6.1 6.0 5.9

(Source: Reuters)

The details – industrial production flails

The data dump out of China on Thursday, namely industrial production, retail sales and fixed investments (FAI), had been mixed as shown in the table above. Of which, particular attention had been the industrial production miss, falling to 5.3% year-on-year for the combined January to February reading. This marks the lowest figure seen since March 2009 and had evoked an immediate reaction across the likes of the AUD/USD touching the intraday low shortly after release. Regional equity markets had also erased early gains that had been clocked with an improvement in risk sentiment.

That said, one would not have missed the likes of retail sales and FAI leaning towards the positive, surprising moderately at 8.2% and 6.1% respectively. Retail sales activity showed the first sign of rebound after falling steadily through 2018. As for fixed investments, while the infrastructure and manufacturing sectors continued to slow, the others had to pick up the slack. Altogether, suggesting the picture had not been as dire for the market.

Seasonal effect for markets

Looking back at the data releases thus far, we have certainly seen a mixed bag of indicators in the month of February. To recap, we have seen the PMI numbers sustaining in contraction territory, though the official NBS number and the private Caixin gauge had gone in different directions. What had been similar between the two had been the pick up in new orders back into expansionary territory, suggesting that demand is improving.

External demand, however, remained weak as seen through the trade numbers last week. Exports shrank to the weakest in three years with headlines sparking concerns of a ‘trade recession’. This may be one area that would warrant continued attention in light of the US-China trade dispute in the background. To some extent, the market had attributed a significant portion of the poor showing towards Chinese New Year holidays distortions whereby fewer work days were accounted for. However, going into March, the numbers could carry more weight for markets that direly needs clearer direction on how growth is going.

Policy support

As we have derived from the latest 2019 National People’s Congress work report, the growth target had been lowered to 6.0% to 6.5% from 2018’s ‘around 6.5%’. More importantly, though, it is the suite of policies announced including the bigger-than-expected corporate tax cut of over 2.0% of 2019 estimated GDP that had been a pleasant surprise. Mostly aiding the pained manufacturing sector, the move reflected the government’s commitment to curb the slowdown and tails the series of policies such as the reserve requirement ratio (RRR) cuts. The effect is expected to show up in data as we progress through the year, and any positive contrast from the persistence of contractionary manufacturing PMIs would be one to relief markets of the current fears.

Looking at how that would translate to market action, the present and expected policy support certainly helps in lifting the outlook for the Chinese economy from the state of fear that had built up through 2018 and could see continued gains for the Chinese market. Economic indicators would nevertheless have to reflect further stability to help bring in the gains and this will be barring any sudden turn for the worse in US-China trade ties. Look to the likes of the China A50, CSI 300 or regional markets such as the Hang Seng index to capture these gains.

IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

Please see important Research Disclaimer.

Take a position on indices

Deal on the world’s major stock indices today.

  • Trade the lowest Wall Street spreads on the market
  • 1-point spread on the FTSE 100 and Germany 30
  • The only provider to offer 24-hour pricing

Live prices on most popular markets

  • Forex
  • Shares
  • Indices
Sell
Buy
Updated
Change
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Sell
Buy
Updated
Change

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

Sell
Buy
Updated
Change
-
-
-
-
-
-
-
-
-
-
-
-
China 300
-
-
-
-

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.

The Momentum Report

Get the week’s momentum report sent directly to your inbox every Monday for FREE. The Week Ahead gives you a full calendar of upcoming key events to monitor in the coming week, as well as commentary and insight from our expert analysts on the major indices to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.