Bank of America / Merrill Lynch on China, assessing the weekend data and more (from a client note dated September 14).
In summary;
Major activity data came in mixed in August, with industrial production (IP, real) and fixed asset investment (FAI, nominal) data disappointing but retail sales growth (nominal) beating forecasts
- Meanwhile, the housing sector continued improving with better home sales and starts data
- We think the set of data suggests that China's economic growth momentum in sequential terms likely weakened in August
- The volatile financial markets have likely dampened investment sentiment, the slump in global commodity prices would delay industrial restocking, and temporary government measures to create parade blue disrupted industrial and construction activity in seven northern provinces/cities during 20 August- 4 September
However, we do not think China is facing a big risk of hard landing
- Consumer sector showed its relatively resilience ... and housing sector recovery seemed to be on track despite recent financial market pessimism
- Infrastructure FAI growth accelerated on government easing
We believe the government will take more easing measures in the near term to stabilize growth and financial markets
- A massive stimulus package is unlikely
- The government will target to accelerate investment
- On the monetary front, there is still room for 1-2 interest rate cuts in the rest of the year
- The PBoC has revised its RRR method to base on average deposits (instead of daily) and it should help reduce bank liquidity risks and short-term money market rate volatility.
