property market

The Commodities Feed: Copper spread tightens on inventory withdrawals Oil prices are trading under pressure this morning on demand side uncertainties as Saudi Arabia increased the official selling price for July deliveries for all regions. LME copper continues to see inventory withdrawals as demand in Asia picks up.   Energy – Saudi increases the official selling price for oil Saudi Arabia increased its official selling price for all regions for July, a day after the nation pledged an additional oil supply cut for the same month. Saudi Aramco will sell the Arab Light crude for buyers in Asia at a US$3/bbl premium for July deliveries, an increase of US¢45/bbl compared to June 2023.The premium for the US and European deliveries has increased by US¢90/bbl, while buyers in the Mediterranean region will see an increase of US¢60/bbl. The hike in premium comes as a surprise considering ongoing demand concerns and that Saudi Arabia has been pushing for supply cuts to bring the oil market into balance.   Metals – Declining copper on-warrant stocks tighten LME spread Recent LME data shows that total on-warrant stocks for copper dropped by 17,750 tonnes – the biggest daily decline since October 2021 – for a second consecutive session to 71,575 tonnes (the lowest level in almost a month) as of yesterday. The majority of the outflows were reported from South Korea’s Busan warehouses. Meanwhile, cancelled warrants for copper rose by 18,025 tonnes after declining for three consecutive sessions to 27,375 tonnes yesterday, signalling potential further outflows. The cash/3m for copper stood at a contango of just US$4/t as of yesterday – compared to YTD highs of a contango of US$66.26/t from 23 May – indicating supply tightness in the physical market.   In mine supply, Peru’s latest official numbers show that copper output in the country rose 30.5% year-on-year (+1.2% month-on-month) to 222kt in April. The majority of the annual production gains came from the higher output levels from mines like Southern Peru Copper, the Las Bambas and Cerro. Cumulatively, copper production grew 15.7% YoY to 837.5kt in the first four months of the year. Among other metals, zinc production in the nation increased 31.4% YoY to 130.6kt in April.   In ferrous metals, the most active contract of iron ore trading at the Singapore Exchange extended its upward rally for a fifth consecutive session and traded above US$108/t this morning on speculations of more supportive steps from China to accelerate its economic growth. The recent market reports suggest that the People’s Bank of China is likely to cut the reserve-requirement ratio for banks and might also lower interest rates in the second half of the year. Meanwhile, BBG also reported that the Chinese government is preparing a new batch of measures to push growth in the property market.     Agriculture – US crop planting maintains the pace The USDA’s latest crop progress report shows that US corn plantings continue to rise with 96% of plantings completed as on 4 June, compared to 93% of planting done at this point in the season last year and the 5-year average of 91%. Similarly, soybean plantings are also growing, with 91% planted as of 4 June – well above the 76% seen at the same stage last year and the 5-year average of 76%. Meanwhile, spring wheat plantings are 93% complete. This is above the 81% planted at the same stage last season and in line with the 5-year average. Meanwhile, the agency rated around 36% of the winter wheat crop in good-to-excellent condition, up from 34% a week ago and 30% seen last year.   The USDA’s weekly export inspection data for the week ending 1 June indicated a drop in demand for US grains over last week. The agency stated that US corn export inspections stood at 1,181kt, lower from 1,346.4kt in the previous week and 1,458.5kt reported a year ago. For wheat, export inspections stood at 291.6kt, down from 391.3kt from the previous week and 355.3kt reported a year ago. Similarly, soybean export inspections fell to 214.2kt, compared to 243.1kt from a week ago and 370kt from a year ago.   The director general of the Ivory Coast's cocoa regulator, Conseil Café Cacao, stated that the domestic cocoa crop is expected to improve in 2022-23 (compared to the previous year) despite intensifying concerns about a potential outbreak of the swollen shoot virus. Ivory Coast cocoa production is stabilizing despite a slow start, taking the season's harvest projections between 2mt-2.2mt. Last week, the International Cocoa Organization (ICCO) projected an increase of 4% in Ivory Coast's cocoa output this season, reaching 2.20mt.

Keeping up with the central banks.  There were three major surprises from three central banks yesterday.     BoE hikes 50bp, peak rate seen unchanged past 6%.  The Bank of England's (BoE) decision to step up the pace of rate hikes at the 13th meeting since the start of the tightening policy has been broadly unwelcomed from households, to bond and stock investors, and to FX traders.   The 2-year gilt yield stabilized above the 5% mark, yet didn't take a lift on doubt that the BoE could hike by another full percentage point without wreaking havoc across the British economy, especially in the property market. The 10-year yield fell on the morose economic outlook. At this point, it would be a miracle for Britain to avoid recession, and even a property crisis.   The FTSE 100 slumped below its 200-DMA, and tipped a toe below the 7500 mark. Trend and momentum indicators are negative, and the index is now approaching oversold conditions. It is worth noting that falling energy and commodity prices due to a softish Chinese reopening didn't play in favour of the British big caps this year. The rising rates step up the bearish pressure. The outlook remains neutral to negative until we see a rebound in global energy prices - which is not happening for now.   The pound fell as a reaction to the 50bp hike. You would've normally expected the opposite reaction, but the bears remained in charge of the market, pricing the fact that the dark clouds that are gathering over Britain will destroy more value than the higher rates could create.   In summary, it was a disastrous week for Britain. But at least one person didn't get discouraged by the data and the BoE hike, and it was Rishi Sunak who said that the British economy is 'going to be ok' and that he is '100% on it'.     He is not scared of being ridiculous.  Moving forward, the Gilt market will likely remain under pressure, the longer end of the yield curve will do better than the shorter end. The British property market will be put at a tougher test, and could crack under the pressure at any time, in which case the economic implications would go far beyond the most pessimistic forecast. And any government help package to help people go through higher mortgage costs would further fuel inflation and require more rate hikes. The outlook for pound weakens and the FTSE100's performance is much dependent on China, which is struggling with low inflation and sluggish growth on the flip side of the world. Long story short, there is not much optimism on the UK front.  Elsewhere, the Swiss National Bank (SNB) raised by 25bp as expected, Norges Bank surprised with a 50bp hike, said that there will be another rate hike in August, while Turkey hiked from 8.5% to 15% vs 20% expected, raising worries that Turkey's new central bank team could not shrug off the low-rate-obsessed goventment influence. The dollar-try spiked above the 25 level, the highest on record, but not the highest on horizon.       Consume less!  The US existing home sales came in better than expected, adding to the optimism that the US real estate market could be doing better after months of negative pressure. The surprising and unexpected progress in US home data is welcomed for the sake of the economic health, but a strong housing market, along with an unbeatable jobs market hint that the Federal Reserve (Fed) will keep hiking rates. Powell confirmed that there could be two more rate hikes in the US before a pause at his semiannual testimony before the Congress, while Janet Yellen said she sees lower recession risks, but that consumer spending should slow.   The US dollar rebounded on hawkish Fed expectations. 

SEK: A high wire act for the Riksbank today EUR/SEK remains close to historic highs as the Riksbank prepares to announce a key monetary policy decision this morning. As discussed in our meeting preview, the performance of the krona is a primary source of concern for the Bank, but also a relatively “self-inflicted” pain. The dovish shift at the April meeting – when two Board members voted against a 50bp hike – left the krona unshielded from risk sentiment dynamics and above all, mounting domestic risks (particularly those related to a troubled property market). The key question today is whether the hawkish rhetoric that had supported the krona into April will somehow be rebuilt. Market pricing suggests a 50bp hike had been factored in the weeks leading to today’s announcement (a peak of 40bp was reached last week), and the OIS curve now prices 35bp for today and 46bp in total by the September meeting. We think that the recent financial turmoil hitting property company SBB and the more general fragile state of Sweden’s economy and property outlook would argue against a 50bp hike today, but we cannot fully rule it out. To prevent another SEK drop, a 25bp hike would need to be accompanied by signals in the rate forecasts and in the statement that the bank is ready to hike rates further. Another option – which has actually been hinted at by one of the dovish dissenters – would be to accelerate the pace of quantitative tightening. That should be a preferred solution to the third option - FX intervention – which may prove unsustainable and unsuccessful. We suspect there are limitations to the currency impact of faster QT, which would squeeze the back-end of the SEK curve but may leave the EUR-SEK short-term rate differential too wide (considering how hawkish the ECB is) unless the Riksbank pushes forward some rate hike pledges. Expect EUR/SEK volatility today: we suspect there are some upside risks and a move to the 11.85/11.90 level is possible as the Riksbank may fail to make a structurally SEK-bearish market change its mind. By contrast, should we see a resolutely hawkish tone, EUR/SEK may slide back below 11.70. As we have learned from the April meeting, the spectrum of surprises can be quite wide with the Riksbank.  

The green transition takes hold of Germany’s property market More than 60% of the current German housing stock will need to be renovated over the next ten years to meet climate targets set by the European Commission. The transition will come with soaring costs and increasing house price divergence, with energy efficiency expected to rise rapidly to the top of the list of priorities for buyers.   In search of a new equilibrium The German real estate market has entered the expected phase of correction on the back of higher interest rates and weakening real disposable income. In the first quarter, real estate prices were down by some 7% year-on-year. This is not a crash but a correction. At the same time, it will take while before the market is able to reach a new equilibrium. We currently see it reaching a bottom in the second half of the year, followed by a muted recovery in 2024. Financing costs and household income remain the most important drivers of the German real estate market, but factors like location and greenification will add to increased divergence. The real estate sector plays an important role in the country’s efforts to reach climate targets. In 2019, space heating in the private household sector accounted for 17.5% of total energy consumption and is also the source of around two-thirds of final energy consumption in households. Energy is also used for space cooling, heating water, lighting, electrical appliances and cooking. Less than 20% of household energy consumption in Germany is currently covered by renewable energy.   Share of renewable energy sources and heat pumps in total household energy consumption (2021)   It doesn't come as a surprise that the government is now trying to step up to the plate. The highly debated German Building Energy Act (GEG) has determined that from 1 January 2024, all new buildings must be heated by at least 65% with renewable energy. For existing buildings, a 'decision period' is granted until 2028. From 2045 onwards, no more fossil fuels are to be used for heating. However, even the greenest heating system is of little use if energy consumption is still high and energy efficiency remains low thanks to poor insulation. As a result, the EU Commission is aiming for all residential properties in the EU to at least carry an energy label of D by 2033.

Much of the wealth created was illusory That boom created a lot of paper wealth, in which corporates appeared to be making large profits, often just based on unrealised property gains or stock market investments while their operating profits actually dwindled. Banks got sucked into this, financing projects whose main criteria for success was often just the underlying land price or cross-shareholding exposures. And when eventually, the BoJ started to respond to what it perceived as threatening inflation, it popped what had evidently become a massive financial bubble which encompassed not just the property market (real assets) but financial assets and the banking system too.   Contribution to profits in Japan 1986-1992   A burst bubble is a lot worse then slightly weaker growth The stock market crashed and stayed low. Firms went bankrupt and insolvent banks were merged with larger more solvent ones under the so-called “convoy system” which meant that even previously healthy institutions were hobbled. The pain was lessened, but it was more widely distributed. Biting the bullet on bad loans and pulling the plug on zombie companies took a very long time which also prolonged the stagnation and delayed the eventual recovery. The economy of course contracted and remained stagnant for years. Consumer price inflation turned negative and even nominal wages declined. It has taken decades for the economy to pull itself out of the mire that this bubble created, though it appears to be doing so now.   Nominal wages growth 1991-2015

China’s latest activity data worsened across nearly every component. Markets have given up looking for fiscal stimulus, and have started making comparisons with 1990s Japan. We don’t agree with the Japanification hypothesis, but clearly a substantial adjustment is underway, and we have trimmed our growth forecasts accordingly.   Deflation is very different to this A couple of weeks ago, we wrote a piece debunking an argument that was doing the rounds which argued that China had slipped into deflation and was turning into a modern-day equivalent of 1990s Japan. Being old enough to remember that period quite well (unlike I imagine most of the proponents of the idea), it was clear to us that there was no merit to this view. Firstly, deflation is not negative consumer price inflation. Deflation is a much broader collapse in the general price level, which, in addition to consumer prices includes falls in real and financial asset prices, as well as money wages. And though we have seen some renewed falls in house prices, stocks are not looking very robust, and there is indeed some year-on-year decline in consumer prices, however, money wages are still positive. Moreover, the single defining feature of 1990s Japan was that it was the result of a monetary-induced bubble and subsequent bust. There was a property element to Japan's problems, but much more besides. Japan's response was a massive fiscal expansion, which failed to do much more than saddle the economy with a mountain of debt, and the rest is largely history. China’s issues also concern the property market, but it is the existence of large-scale local government debt that is the main constraint on the recovery. There is little evidence of any financial or property bubble. As a result, the government responses, of which there have already been a great many, have almost entirely focused on supply-side measures, which are only having a very marginal effect on activity.     Local government financing vehicles swell government debt    

Metals – Fresh stimulus from China for the property sector Base metals prices extended this week’s gains this morning as healthy economic data and fresh stimulus measures in China buoyed sentiment. Caixin manufacturing PMI in China increased to 51 in August compared to 49.2 in July; the market was expecting the PMI to remain around 49. This is the strongest manufacturing PMI number since February. Meanwhile, Beijing has announced fresh stimulus measures aimed at supporting the property sector. The People’s Bank of China has lowered the minimum downpayment for mortgages for both first-time buyers (from 30% to 20%) and second-time buyers (from 40% to 30%) while the minimum interest premium charged over the Loan Prime Rate has also been reduced. China is also allowing customers and banks to renegotiate interest rates on existing housing loans which could reduce interest expenses for borrowers. LME continues to witness an inflow of copper into exchange warehouses. LME copper stocks increased by another 3,675 tonnes yesterday, taking the total inventory to a year-to-date high of 102.9kt. Meanwhile, cancelled warrants for copper remain near zero levels, hinting that there may not be any inventory withdrawals from LME in the short term and total stocks could continue to climb over the coming weeks. Europe witnessed an inflow of 2,700 tonnes yesterday whilst 950 tonnes were added in the Americas and 25 tonnes in Asia. Gold prices have held steady at around US$1,940/oz as the latest economic data from the US eased some pressure on the Federal Reserve to continue with rate hikes. The core PCE (Personal Consumption Expenditure) deflator in the US increased at a flat 0.2% month-on-month in July, the second consecutive month at 0.2% which should help the Fed in getting inflation back on track to around 2%. On the other hand, data from Europe was not that supportive with core CPI falling gradually from 5.5% to 5.3% and CPI estimates remaining flat at 5.3%. The focus is now turning to today’s US non-farm jobs report which is expected to show a smaller rise in payrolls in August.

  Industrial Metals Monthly: China's stimulus in focus Our monthly report looks at the performance of iron ore, copper, aluminium and other industrial metals, as well as their outlook for the rest of the year. In this month's edition, we take a closer look at the recent impact of new stimulus measures introduced in China.   Metals markets assess China policy   China ramping up economic support A mixed picture of China's economy has been painted by the latest releases of official PMI data. While the manufacturing index increased slightly to 49.7 – its third consecutive rise since the lows of 48.8 seen in May – it's still falling short of the 50-level mark associated with expansion.  The non-manufacturing series, which had reflected the bulk of the post-reopening recovery, fell further in August. At 51.0, the index was a little lower than the forecast figures of 51.2 but at least remains slightly above contraction territory.   Meanwhile, the Chinese government has moved forward with a series of stimulus measures designed to turn around the flagging economy and its ailing property sector, which accounts for more than a quarter of China’s economic activity. Included in these measures was the decision to cut down payments and lower rates on existing mortgages. The nationwide minimum down payment will be set at 20% for first-time buyers and 30% for second home buyers. Mortgage rate cuts will be negotiated between banks and customers, and both policies will go into effect on 25 September. The introduction of these measures came after China’s home sales slumped in August. Sales by the country’s largest developers fell 34% from the previous year, according to China Real Estate Information Corp. It was the deepest drop seen in over a year. Further stimulus packages could also be introduced, which could boost the need for industrial metals. So far, Beijing has remained reluctant to back major stimulus that might be necessary to put a floor under falling home sales. News of a surge in home sales in two of China’s biggest cities has offered an early sign that government efforts to cushion a record housing slowdown are helping. Existing home sales for Beijing and Shanghai doubled over the last weekend (2-4 September) from the previous one. Reports of property developer Country Garden avoiding default with last-minute interest payments also restored some additional confidence in China’s property sector.   The metals markets will now be watching how sustainable this pickup in interest is and how long it will last. China’s recovery is still uncertain, and metals are likely to see some continued volatility for a while – at least in the near term. For the remainder of this year, the key factor for the direction of metals prices will be whether China will be able to stabilise its property market. Until the market sees signs of a sustainable recovery and economic growth in China, we will struggle to see a long-term move higher for industrial metals.   Fed pause bets bolster sentiment Sentiment in metals markets also received a boost after last week’s US jobs report that showed a steadily cooling labour market, offering the Federal Reserve room to pause rate hikes this month. Nonfarm payrolls increased 187,000 in August, while hourly earnings rose slightly less than the median economist forecast. The central bank hiked rates by 25 basis points at its July meeting following the recent strength seen in economic data. At the Jackson Hole conference last month, Fed Chair Jerome Powell announced plans to keep policy restrictive until confidence that inflation is steadily moving down toward its target has been fully restored. Over the next few weeks, we'll be keeping a close eye on US data releases which could shed more light on what the Fed may do next.   Higher-for-longer interest rates will ultimately lead to a drop in metals prices September appears set for a pause given recent encouraging signals on inflation and labour costs, but robust activity data means the door remains open for a further potential increase. Markets see a 50% chance of a final hike, while our US economist believes that rates have most likely peaked. US interest rates remaining higher for longer would lead to a stronger US dollar and weakening investor confidence, which in turn would translate to lower metals prices.     US rate cuts to start by the spring   Iron ore rises on China property aid Iron ore prices held above the $100/t mark in August despite China’s worsening property crisis, which in typical years makes up about 40% of demand.   Iron ore has managed to stay above $100/t for most of 2023    

Logistics market ​According to JLL 1Q23 data, total net demand for logistics space decreased in 1Q23 by 35% y/y to 1.0m sqm, concurrently with an increase of lettable area of 21% y/y to 30.5m sqm (we note that the developers delivered 1.5m sqm in 1Q23). The most active group of tenants were industrial and e-commerce companies. The vacancy rate amounted to 6.3% (+1.2pp. q/q; ca. 1.9m sqm).      As major risk factors we point to: • Risk related to the demand for dwellings. The company’s results are dependent on pre-sales, which took place in previous quarters. Thus, in most cases a drop in demand will negatively affect the financial data and profitability. We note that in 2021- 22, Marvipol Development pre-sold 376 and 207 apartments, respectively, due to a limited offer and the above-mentioned deterioration in demand. Hence, we predict that the developer will deliver 442 flats in 2023E, in comparison with 910 units in 2022.     • Risk related to interest rate volatility. In 2022, demand surged, which was driven mainly by interest rate hikes implemented by the MPC. The clients lost their creditability, which decreased by 60-70% (according to market data). Moreover, the share of credit-buyers fell from 70-80% to ca. 20% as of end-2022. Nevertheless, starting from 1Q23, creditworthiness started to slowly recover, which has underpinned pre-sale volumes. Given recent BIK data, the number of granted mortgages in June present an increase in y/y terms for the first time since Dec21.     • Risk related to the mortgage bank’s policy. The demand change may also be affected by the bank’s attitude to mortgage policy. According to the latest NBP survey, the majority of sector representatives are planning to tighten credit policy in coming months, despite an improving market environment.     • Risk related to costs. The profitability of residential projects depends on two key factors on the cost side: 1) material prices, and 2) landplot prices.   We observed increased volatility of core material prices in 2022, due to the negative impact of the war in Ukraine, which could leave a footprint on future projects. Nevertheless, the developers decided to increase selling prices and we suppose that the companies will be able to mitigate the above-mentioned factor. Furthermore, the developers reported that in 2023E the key material prices, have at least stabilized, which sounds quite supportive to us. Regarding landbanks, prices continue their long-term trend of hikes and the share of the landbank in the selling price grew from 20% to 22-24% as of now. In our model, we assume that gross profitability will gradually fall to nearly 23% (vs. a long-term average of 23.7%).   • Risks related to the logistics market. The logistics division is a supplementary activity within the company’s business model. As of end-2Q23, the group has invested > PLN 200m in logistics projects and will regain this, if the projects are sold. As of now, we observe a slowdown in the investment market, which is caused by a deterioration in the macro environment and increase in exit yields, which has left a footprint on valuations.

Despite lingering uncertainties and negative sentiment toward Chinese stocks, they offer attractive valuations, with the Hang Seng Index trading at 9x earnings and CSI300 at 12x earnings for 2023. Last week it started strong, bolstered by eased property regulations and a resurgence in manufacturing PMI. However, concerns over the services sector, U.S.-China tech tensions, and market performance dimmed sentiment. CPI rebounded, while PPI improved. Notably, August saw a substantial increase in new Yuan loans and government bond financing, indicating economic support. Key data to watch this week include industrial production, retail sales, and fixed asset investment trends.   Key Highlights from the Article Chinese stocks offer potentials for a tradable rally Market sentiment fluctuated due to concerns over tech tensions and PMI data. August saw a significant increase in new Yuan loans and government bond issuance. CPI rebounded, while PPI showed signs of improvement in China's economy. Key data this week includes industrial production, retail sales, and fixed asset investment.   Attractive Valuation and Light Positioning Amidst an Upcoming Cyclical Recovery Despite a series of regulatory measures aimed at revitalizing the property and mortgage markets, market responses have remained somewhat subdued. Nevertheless, we are optimistic that these initiatives will contribute to a surge in mortgage loan growth, building on the rebound witnessed in August aggregate social financing data (see below). Our outlook suggests the likelihood of a cyclical recovery in the Chinese economy, particularly in Q4, even though the medium-term prospects remain uncertain and riddled with challenges. Notably, Chinese stocks bear a significantly below-average weight in institutional investors' portfolios, compounded by prevailing negative sentiments. Additionally, a series of economic and earnings growth downgrades by analysts has set a relatively low bar for the Chinese and Hong Kong equity markets to surpass. As of the latest data, the Hang Seng Index is currently trading at around 9x earnings for 2023 or 6x operating cash flows. Meanwhile, the CSI300 is trading at 12x earnings for 2023 or 8x operating cash flows. These valuation multiples present attractive opportunities for investors seeking a potential tradable rally in the context of the upcoming cyclical recovery.     Recap of Key Developments from the Previous Week The week commenced on a robust note, driven by a series of measures aimed at easing regulations in the property market and mortgage sector. These initiatives were particularly designed to reduce costs for prospective homebuyers, especially those eyeing properties in first-tier cities. For a more comprehensive discussion of these policies, please refer to our Weekly Market Pulse from last week. The market rally received an additional boost from the resurgence of the Caixin China Manufacturing PMI, which returned to expansionary territory, registering at 51.00—the highest level since the 51.6 reading in February. Furthermore, semiconductor stocks and other companies within Huawei's supply chain witnessed increased demand after Huawei unveiled its Mate 60 Pro mobile phone, showcasing impressive 5G capabilities. This development implied a significant breakthrough in its processor supplier, SMIC, which has apparently entered commercial production of 7nm chips. However, as the week progressed, market sentiment began to wane in response to a significant drop in the Caixin Services PMI, which fell to 51.8 in August from July's 54.1. This decline reignited concerns about the challenges facing the Chinese economy. Moreover, investor anxiety mounted over the rising risks of the United States tightening semiconductor technology restrictions on China, with the House of Representatives' Committee for China advocating an end to all technology exports to Huawei and SMIC. Fears of escalating tensions between China and the U.S. in the technology sector were further fueled by reports in foreign media outlets suggesting that Chinese authorities were restricting government and state-owned enterprise employees from bringing iPhones to their workplaces. While it has long been the case that officials working in sensitive government departments were not allowed to use iPhones for work purposes, anecdotal events and social media discussions indicated an increase in government departments urging officials to abstain from using iPhones. However, a nationwide directive imposing widespread restrictions on iPhone use in government departments and state-owned enterprises has yet to be confirmed and in our opinion tends to be unlikely. These concerns surrounding the intensification of the technology war between China and the U.S. cast a shadow over market sentiment, resulting in negative market performance. The Hang Seng index was down nearly 1% during a rainstorm and flooding-shortened week, while the CSI300 experienced a 1.4% decline.   CPI Bounces Back to Positive Territory in August, Indicating Encouraging Signs China's Consumer Price Index (CPI) rebounded moderately, rising by +0.1% year-on-year, as expected, after July's deflationary reading of -0.3%. This upturn was supported by a low base effect from the previous year. Notably, non-food inflation accelerated to +0.5% year-on-year in August, up from 0.0% in July, while the Core CPI, which excludes food and energy components, remained steady at +0.8% in August. On a monthly basis, the CPI increased by +0.3% in August, compared to +0.2% in July. In contrast, the Producer Price Index (PPI) continued to contract, but at a less severe rate, declining by -3.0% year-on-year, showing improvement from July's -4.4%. This improvement was attributed to both a low base from the previous year and the recovery in domestic and global commodity prices.   Sharp Increase in New Yuan Loans and Government Bond Issuance in August Released on Monday, China witnessed a significant surge in new Yuan loans during August, surpassing expectations, reaching RMB 1,360 billion, compared to RMB 346 billion in the previous month and RMB 1,250 billion in August of the previous year. This surge can be attributed to increased regulatory encouragement for banks to extend loans and favorable seasonal factors. Corporate loans played a significant role in this increase, surging to RMB 949 billion in August, up from RMB 238 billion in July, surpassing the previous year's RMB 875 billion. Notably, the medium to long-term portion of new household loans, primarily mortgage loans, rebounded to RMB 160 billion, reversing a net repayment of RMB 67 billion in July. The growth rate of outstanding RMB loans remained steady at +11.1% year-on-year, mirroring the previous month's figure. Additionally, new government bond financing surged to RMB 1,180 billion in August, up from RMB 411 billion in the previous month and RMB 305 billion a year ago. With robust loan growth and the front-loading of local government bond annual issuance quotas, the aggregate social financing data for August reached RMB 3,120 billion, a substantial increase from July's RMB 528.5 billion. The year-on-year growth of outstanding aggregate social financing slightly increased to +9.0% in August, compared to 8.9% in July.   Key Data to Watch This Week This week, keep an eye on the upcoming activity data releases. According to Bloomberg consensus forecasts, we can expect several notable trends: Industrial Production: In August, industrial production is projected to rise by 3.9% Y/Y, an increase from July's 3.7%. This uptick is a reflection of robust manufacturing PMI data, indicating a strengthening industrial sector. Retail Sales: August is expected to bring a 3.0% Y/Y growth in retail sales, outpacing the 2.5% growth seen in July. This growth is anticipated to be driven by increased auto sales and catering services. Fixed Asset Investment: While infrastructure construction was likely supported by the front-loading of local government bond issuance in August, there are factors to consider. The comparison with a high base from the previous year and continued weakness in property construction may restrict the growth of fixed asset investment for August. Consequently, the Bloomberg consensus suggests a year-to-date slowdown in fixed asset investment, declining to 3.3% Y/Y from the previous rate of 3.4%.

China: Some spots of improvement in activity While the overall economic background remains a very challenged one, there were some more positive signs in the latest data deluge, though all things related to the property market continue to struggle.   No signs of panic from the PBoC The day of China's data deluge started quietly enough. The PBoC left the one-year medium-term lending facility (1Y MLF) unchanged. Given the problems they have been having propping up the CNY in recent weeks, and the fact that the day before, they had already reduced the reserve requirement, any cut to the MLF today would have seemed excessive and would have put the CNY under undue weakening pressure. That did not happen.  Shortly after that, new home price data were released. These fell again from the previous month and at a slightly faster pace. As we noted in the summary - amongst some brighter data on activity, anything real-estate related remains troubled.    Activity data either better, or better-than-expected When the bulk of data was released 30 minutes later, it was immediately apparent that this was on balance a more positive set of data than we have seen recently. Growth rates across a broad range of activity indices were slightly higher, and where they weren't, they tended to beat expectations. So for the most part, the data was either better, or better-then expected.    Summary of August's activity data   Retail sales actually rose Breaking the data down by component, the standout result was the 4.6%YoY rise in retail sales. This was up from only 2.5% in July, though the year-on-year, year-to-date (ytd) growth still slowed slightly. With the historical comparisons so messed up by lockdowns and re-openings, we prefer to look at our own seasonally adjusted real retail sales series. And this shows that sales actually picked up in real terms in August from July, and are now close to their long-run trend. That's both good and bad. Good as retail sales seems to have turned the corner. Bad, because this probably means growth will be more pedestrian from now on.   Real seasonally adjusted retail sales ING Calculations   Production also improved While it is also subject to the same caveats about year-on-year comparisons, the industrial production growth figures also edged slightly higher. We also got a slight decline in the surveyed jobless rate to 5.2%. This is not a terribly helpful or informative set of data, but the direction of travel is at least encouraging. As mentioned, anything real-estate related remained problematic. Property investment decreased at an 8.8%YoY pace, worse than the 8.5% decline in July, but not as bad as the market was expecting. And perhaps given the relationship between infrastructure spending and the property sector, it was not too surprising to see infrastructure spending growth slow slightly to 3.2% from 3.4%, though it is at least still growing.    CNY took advantage of the data After having been under weakening pressure for several weeks, the CNY rallied into this data, helped by another low PBoC reference rate which fixed at 7.1786, lower than the 7.1874 the previous day. Remarkably, our end-of-month, end-of-quarter forecast for CNY is no longer looking too bad at 7.25 with the CNY currently trading at 7.2597. Whether this will hold until the end of the month is another matter.      PBoC supporting the CNY