China Factory Activity Shrinks Again; Home Sales Slump Slows
Let's just stop with the official numbers from the weekend. What exactly did they signal to us? Yes. So PMI data state flat from May contracting for a second straight month. And you're right, this is an area, manufacturing is the area that Beijing has been really betting on to help lift the rest of the economy. But it looks like this slowdown in domestic consumption is perhaps really hitting the supply side as well. We saw gauges for input and output prices falling slightly in June, which perhaps suggest mildly stronger deflationary pressures on factory gate prices as well. And again, you also see these trade tensions ratcheting up with these. Trade barriers erected against Chinese producers and that's why we're seeing the Thai scene forecast as well, which is a more export oriented forecast for Chinese manufacturing that is expected to slow down from the previous month. Now if you look at the non manufacturing PMI that has missed expectation slightly coming in at just above 50, the expectation was 51. But perhaps the most worrying is the construction sub index because that's where we see the biggest drop to 52.3, down from 54.4. And this is the weakest print we've seen since July of last year. Suggesting that those government LED infrastructure investment is perhaps a losing steam a little bit and so more stimulus will be needed. And there are two things that can change this. One is that July plenum coming up, we could see more confidence boosting measures from there. And the other is that PBOC buyback scheme of unsold homes, if that is expanded, we could see construction sub index moving up as well. Yeah. Given everything that you've just told us, perhaps not surprising then that home sales continue to slow. Yes. So home sales is down 17% in June, but the good news is that decline has slowed down because the previous month home sales was down 34%. So it was much steeper decline in May. So this is good news for the housing sector and for the broader economy as well. Clearly, some of those home buying curbs that has been eased in the tier one cities, those has taken effect. We have seen cities like Shenzhen and Guangzhou and Shanghai as well, really either lowering or removing those mortgage rate flaws to make home loans easier and slashing down payment ratios as well. And that's why we saw this 30% jump in home sales in the 1st 25 days of June. In places like Shenzhen and Guangzhou, Shanghai saw slower gains of 11%. But it's good news overall. But investors and economists think we're not not out of the woods yet again that PBOC plan to buy back unsold homes. They are calling for that to be doubled, for the PBOC to inject double the amount of liquidity to help buy back unsold inventory. And of course, we have many of these distressed developers, many of whom have been really in default for more than a year. They are really banking on this revival of sales to help persuade debt holders and to fight off their liquidity their their liquidation.