Noble Apex eNewsletter Issue 804- A takeaway of China’s March TSF

2019-04-15 09:00
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15 April 2019 Issue 804

Global Market Commentary


  • US: The progress of Sino-US trade negotiations are optimistic, US Treasury Secretary Mnuchin said that the progress of Sino-US trade negotiations nearly comes to the end. Besides, both Morton and Wells Fargo performs better than the market expectations, which benefits the US stock markets . For the entire week, the Dow fell by 0.05% to 26,412.30. The S&P 500 index rose by 0.51% to 2,907.41. The Nasdaq rose by 0.57% to 7,984.16.
  • Europe: The United States may impose tariffs on European goods, with an aim to punish the illegally subsidization of European Union to Airbus. Moreover, European Union may take retaliatory measures against US’s punishment. For the whole week, the UK’s FTSE 100 index fell by 0.13%, the German DAX index fell by 0.08%, and the French CAC40 index rose by 0.48%. The STOXX 600 index fell by 0.18% to 387.53 points.
  • Asia: The White House threatened to impose tariffs on US$11 billion worth of EU products, affecting European and Asian stock markets. Over the week, the Nikkei 225 index rose by 0.29% to 21,870.56 points. The MSCI Asia Pacific Index fell by 0.10% to 162.36 points.


  • US: The market is less worried about the economic slowdown in US since the rise in the producer price index and the new US jobless claims have hit a 50-year low. For the whole week, the yield on the US 10-year government bond rose by 7 basis points to 2.554%.
  • Europe: British Prime Minister Theresa May intends to cooperate with opposition leaders to reach a consensus on the Brexit agreement, and the market expects that Theresa May is turning to a soft Brexit position. For the whole week, the German 10-year bond yield rose by 5 basis points to 0.054%.


  • Oil: The market worries that the oil supplies would be affected by the US sanctions against Iran and Venezuela and the escalating conflicts in Libya. Over the week, New York oil futures rose by 1.28% to close at $63.89 a barrel.


  • US dollar: The US Federal Reserve’s dovish meeting minutes suppressed the US dollar. For the whole week, the Dollar Index fell by 0.434% to 96.972.
  • China: The US Federal Reserve’s dovish meeting minutes suppressed the US dollar and benefits the yuan. For the whole week, the yuan rose by 0.140% against the US dollar at 6.709.


Economic-related News

  • US: US Finance Minister Mnuchin’s latest statement  indicate that the United States and China are close to reach an agreement. He said that the implementation mechanism should be in two-way interactive. If the United States fails to comply with its commitments in a potential trade agreement with China, the United States will also bear the consequences.
  • U.S: US President Trump once again blamed the Fed, saying that if the Fed works properly, the US stock market will further rise by 5,000 to 10,000 points.
  • U.S: Trump said that the development of 5G infrastructure is a race that the United States must “win” and cannot allow any other country to surpass the United States in this powerful future industry.
  • Euro-zone: The EU is preparing to implement retaliatory tariffs on 10.2 billion euros of US goods, ranging from food to helicopters.
  • Euro-zone: European Central Bank chief economist Praet and German central bank governor Weidmann claimed they are holding an opened attitude towards negative interest rate policy assessments, but have not made a commitment to change.
  • Euro-zone: British Chancellor of the Exchequer Hammond said that the British government and major opposition parties agree on the basic principles of Brexit and may make a breakthrough in the next few weeks. Prime Minister Theresa May will not resign before Brexit.
  • Japan: The Bank of Japan data showed that after seasonal adjustments, Japan’s domestic Corporate Goods Price Index (CGPI) rose for two months in March, rising 0.3% month-on-month, exceeding market expectations of a 0.2% increase.
  • Japan: The Bank of Japan data showed that Japan’s M2 money supply rose by 2.4% year-on-year in March, in line with market expectations. During the period, M3 money supply maintained a 2.1% growth year-on-year, in line with market expectations. And the M1 money supply increased by 5.5% year-on-year.
  • Singapore: The Singapore Bureau of Statistics announced that Singapore’s total retail sales in February fell by 10% year-on-year while market was originally expected to rise by 2.5%. After the seasonal adjustment, the Singapore’s total retail sales also fell from 0.5% increase to 1.5% decrease.


China Market Commentary
Economic-related news
• Chinese Premier Li Keqiang said that the Chinese government has confidence in achieving the main targets of 6%-6.5% economic growth this year.
• Chen Yulu, deputy governor of the People’s Bank of China, said that China will maintain a sound monetary policy stance this year. He also claimed the People’s Bank of China would stimulate economic growth through fiscal instruments and keep the RMB exchange rate in line with fundamentals at the same time.

A Takeaway of China’s March TSF

Following a rebound of March PMI back to above expansion level of 50.5, China released another set of strong data, further signaling that the country’s economy could be bottoming out soon. The newly released credit data, total social financing (TSF) – a board measure of credit and liquidity in the economy, jumped by 81% YoY to RMB2.86 trillion in March, considerably higher than Bloomberg consensus expectation of RMB1.85 trillion. Adjusted TSF stock growth (after adding local government bond issuance, but excluding special bond issuance) in March also accelerated to 11.6% YoY, from 11.0% in February. Combining Jan-Feb data, the YTD cumulative TSF was 40% higher than last year.


Looking into details, one of the major upside surprises was from the new bank loans (net), which picked up considerably to RMB1.69 trillion in March from RMB1.12 trillion, above consensus forecast of RMB1.2 trillion. Both household and corporate loans strengthened. Short and medium-term new household loan increased to a 5-year record high of a total of RMB891bn (+321bn YoY) on seasonal factors, a light recovery of property market as well as a pick-up of retail sales in China (such as auto sales). Likewise, new corporate loans in March almost doubled of that a year ago to RMB1.07 trillion. The medium and long-term corporate new lending surged by 44% to RMB 657bn, while net corporate bond issuance increased by RMB328bn. The increase in corporate new lending could be the result of the profit-boosting VAT cut. At the same time, corporate starts to rebuild their inventory in anticipation of recovery in domestic and overseas demand.


Figure 1: China New Bank loans (net) pick-up in March

Data Source: PBOC, Noble Apex/iFund

Another surprise was from shadow banking credit in China. In contrast to 2018 having negative shadow credit growth every month from March through December, the activity revived in January this year, but then dipped again in February. However, with March number back to positive again to RMB82bn (vs. -253bn in March 2018), China obviously has eased the reins on its local shadow backing creation in order to spark its credit impulse. The rise in shadow banking credit was also in-line with China’s M2, which further accelerated to 8.6% YoY in March from 8.0% in February, also above market expectation of 8.2%, implying that China is keen to flood the economy with new credit.


Overall, the March’s TSF and other positive data is suggesting that China‘s economic recovery is on right track. We expect stock market sentiment continues to improve amid solid macro data in 2Q 2019 and we also see upside risk of China’s GDP growth for the full year. However, the well expected RRR cut in April may now delay to 2H 2019 and there is potential slowdown in further loosening measures. The absolute amount of TSF monthly addition would be peaking off from March onward this year in order to avoid over-loosening risk and another round of debt-build up (since zero TSF growth for the remaining months of 2019 will enable China to meet its official TSF target of 12% this year). In fact, a 2 ppts increase in credit growth together with a moderation in nominal GDP will bring China’s debt/GDP ratio to increase by 6ppts in 2019 after a decline in 2018. It will remain a challenging task for China to balance leverage and growth over the long-term.


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