Charnon Boonnuch, Research Analyst at Nomura, expects China’s export growth to slow as US-China trade tensions have escalated and the import tariff hike by the US on Chinese goods has come into effect.
Key Quotes
“Import growth is likely to accelerate in year-on-year terms as Chinese importers could have postponed their shipments to July given the tariff cuts on certain imports (such as autos and daily commodities) came into effect on 1 July.”
“We expect PPI inflation to soften in July as high-frequency data suggest largely stable prices of overall industrial products, while favourable base effects subside in Q3. Recent fiscal stimulus measures could pose some upside risk to our forecast, but we believe it will take longer to fully feel their effect.”
“CPI inflation is likely to edge down further in July as high-frequency data suggest food price deflation widened modestly in the month, more than offsetting the seasonal increase in non-food price inflation implied by historical patterns.”
“Our FX strategists believe headline FX reserves will fall by USD1.4bn to USD3110.8bn in July. After adjusting for FX and coupon effects, we estimate the adjusted change to fall by USD5.0bn, from an increase of USD3.6bn in June.”
“We expect M2 growth to rebound in July from its record low in June, mainly driven by the 50bp reserve ratio requirement (RRR) cut effective 5 July, stronger-than-usual net liquidity injections through the People’s Bank of China’s (PBoC) medium-term lending facility (MLF), and a reported proportional MLF injection by the PBoC to encourage bank lending and high-yield bond investment.”
“We see some upside risk to July credit supply from: 1) the State Council call for a more pro-active fiscal policy and the requirement for financial institutions to meet reasonable financing needs of LGFVs at its meeting on 23 July; 2) several reputable media reports in late July that the PBoC has lowered the “structural” and “pro-cyclical contribution” parameters in its macro-prudential assessment framework for banks, which allows banks to lend more without compromising their performance in the PBoC’s risk assessments; and 3) the PBoC and CBIRC’s special policies on 20 July to facilitate moving off-balance sheet loans back on to balance sheets.”
“We expect new RMB loans to increase in July, compared to a seasonal fall from June to July in past years, which could help cushion the seasonal decline in aggregate financing.”
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