China macro

The monthly data drop is out, firstly, house prices continue to decline…

…secondly, the consumer miss was quite large, with China’s retail sales data looking very flat year on year. Industrial production up strongly, however, driven by what is essentially support to manufacturing (cheap loans, subsidies etc, all of which are funded by the consumer through weaker-than-would-otherwise-be wages).

Overall, not at all a good set of numbers.

Once again, it does make it hard to see where the demand for iron ore and copper are coming from, so strongly. We know iron ore inventories have been rising, we know copper is in contango (indicating weaker demand, see first row, middle column) and we know LME inventories have been relatively elevated.

Now the news re: property support, in the form of stimulus, forgiveness, relaxation of constraints, and more, is not visible “in the numbers” given the house price declines, given the housing floor starts, it’s really only visible in the news wires and the share prices of some/select/certain securities.

But if commodities trade “in the here and now” and not so much prospectively (e.g. forward looking, because that’s not how demand and supply for these markets work) it is again hard to understand the resilience.

Confusing, to say the least.

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