Kay Van-Petersen
Saxo's global macro strategist Kay Van-Petersen examines the big issues for the markets in the week ahead in this brief rundown.
Article / 22 June 2016 at 10:55 GMT

Daily Shot: Just how healthy is China? Team / Saxo Bank
  • Chinese excavator sales post decline
  • Data suggest liquidity trapped in financial sector
  • Capital outflows remain an open question

By Walter Kurtz*

Let's discuss a few items on China's economy.
1. Capital Economics argues that capital outflows from China have been driven by "Chinese firms paying back external debt." Based on that assumption, capital flows out of the country should be ending now.

Capital outflows
2. After a quick fiscal stimulus boost, China's excavator sales decline again. This is one of the indicators of industrial activity. 

Excavator sales
3. China's home sales seem to be slowing. 

Home sales
4. A recent study found no evidence that the RMB fixings are linked to the currency basket (CFETS) announced by Beijing in 2015. In fact, the RMB volatility against the "magic basket" has been higher than against the US dollar. 

5. China's M1 versus M2 growth divergence (broad and narrow money supply) suggests liquidity is trapped in the financial sector instead of flowing into the broader economy. One of the drivers of this trend is banks financing more of their assets via the bond market rather than with deposits. 

An indicator of the divergence above is China's banks lending to non-bank financial entities (such as WMP managers). 


Turning to Food for Thought, apparently Greenland was hit with a 75°F weather – a record. The situation looks quite scary globally as well. 

— Edited by Michael McKenna
Walter Kurtz is an alias 
** This is an abridged version of the Daily Shot. To subscribe to the full version, link to the Daily Shot and select the appropriate command. E-mail addresses are never shared with anyone.


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