Unlike the echolalia in the press, we have decided to work
backwards from the almighty data dump and finish with a compelling statement of
the realities of the situation.
The market is now pricing in a stimulus - whether this is delivered or massaged into figures is another matter. We shall
avoid all references to a “wappy wending” heard recently on a conference call!
Li’s mishap was more entertainment than anything else, but gives the realities
of the steel situation in China.
We have the mystical deflation that is occurring in food
prices, retail and manufacturing both in goods inwards and outwards - Not the
model one likes when leveraged and expecting non-stop stellar returns!
On Saturday (the trade data) in conjunction with today’s
economic data merely represents the facts. We’ve had disappointment in imports
(18.8%), exports (down 6.9%) and retail flat (11% up compared to this time last
year).
What with the trade data and dump, we’re back to media copy
and paste measures eluded to here and in the odd morning note and call. The
PBoC are listening to the cries of those that scream blue murder at “only 6.9%”
(yeah right) GDP growth (EMC has always been 4-4.5%).
The PBoC is now left compelled to slash interest rate,
massage the Reserve Ratio Requirements (RRR) and stem the capital outflows.
Actually, the latter could perversely damage China with a requirement to “bring
home the bacon” in terms of revenue. There is now a need to also diversify away
from a reliance on an overcooked and slowing economy. Sell China/US? Hmmm
compelling argument.
All the above is compounded by an inflation rate, that for
saying there’s been X stimulus etc…etc… (We’ll avoid the bore), the inflation
rate is falling. Aided to some degree by the price of pork falling…as covered
here! Also in part due to producer prices slid 5.9%, declining for the 44th
consecutive month. Never mind the inventory issues and wage costs that may have
further implications on non-performing loans (remember those last time
around?).
With the industrial figure being below consensus, September’s
reported 5.7% and near 5.6% the market has looked for reassurance in retail
performance - Retail can only be described as flat. The sales however mask an
element we’ll be covering here called Chinese Margins, because one suspects
they’ve taken a beating as well. Footfall’s and voids at malls, giving a
different view on the figures as well. A quick survey of rents paid shows some
eyebrow raising questions…why if retail is improving are the very retailers
struggling?
The industrial production figure at 5.6 was below
September's 5.70 per cent level and below the pencil brigades’ consensus - The
data validates China’s need to move towards consumption. The speed of the
transition is likely to be the stumbling block for expectations, with some pain
and unknown implications for growth.
One needs to see further evidence in the PMI Services for
China to start to turn modestly positive of a floor being found in the economy.
This may be aided by a massive glut/trend of Private Finance Initiatives/Public
Private Partnerships to assist the transfer of wealth from state to comrade. (We’ve
covered this previously).
We are also reminded of the Chinese Iron and Steel
Association report whereby their members have reported collective losses of
near $4.5B. What with the “assistance” they’ve received both in the pricing of
energy, rebates and what we shall loosely call Central/Local Government grants
- quite staggering if there was a level playing field.
We note that ArcelorMittal pulled the trigger on a rights
issue in South Africa, that’s not only bad for Kumba Iron Ore with their
revised pricing agreement but gives an indication of sector realities. The Kumba
Iron Ore and Atlas Iron fan club have beaten back into action with some
meaningful suggestions on occupations for yours truly!
Expect more headlines similar to this on Thursday when China Shanshui Cement Group defaults on its
debt. The prudence, as reported by Bloomberg is: China
Fund That Gained 24% on Bonds Sees Substantial Correction. Additionally,
following on from the EMC piece of steel, where apparently Chinese Steel Mills
were reacting to market forces, then we need to consider Baoshan
Steel's Loss Highlights Crisis Engulfing China Mills.
As promised, at the beginning (if you’re still reading) –
from the Baoshan Article on Bloomberg:
HFT One-Year Open Bond Fund was
ranked No. 2 among the 270 bond funds, according to Haitong Securities.
“We aren’t worried about
large-scale defaults because the central bank’s monetary policy will stay loose
within the coming two years,” Shao said, adding he plans to expand his fixed
income team from 16 to as many as 25 within the coming three years.
We’ll just ask readers to consider that again in Italics…and leave it out there:
“We aren’t worried about large-scale defaults because the central
bank’s monetary policy will stay loose within the coming two years,” Shao said,
adding he plans to expand his fixed income team from 16 to as many as 25 within
the coming three years.
Atb Fraser
N.B. We note the Prosecutor on the Tailings Dam is citing Negligence
on the radio and in the media…whether BHP can walk away from this is another
story. Vale simply cannot afford to as the cashflow or “hope of cashflow is
needed.” Samarco debt trading at a near binary bet of existence.
Keep up the good work and any update? - NFP consequences on the money as was 450-50 pence or near was on Anglo America. DBe
ReplyDeleteEvening DBe, I will do in due course as I have a lot of trades active or researching its very difficult to find the time. Maybe tomorrow when it quietens down a little. Atb Fraser
DeleteAlthough we may have a very large default in the commodities space if base metals continue to run lower. It shall be an interesting time, those needing cash will have their hands forced if they don't do something very soon. Atb Fraser
Delete'Vale and BHP were completely careless': Brazil levies initial fines of $93 million over Samarco tragedy '
ReplyDeletehttp://www.smh.com.au/business/mining-and-resources/vale-and-bhp-were-completely-careless-brazil-levies-initial-fines-of-93-million-over-samarco-tragedy-20151112-gkxvfc.html
Hi Fraser- more re Samarco here-- the fines now headline at $360m and more importantly there was a 2013 report re the tailings dam which seems to have been ignored.
Deletehttp://www.smh.com.au/world/brazilian-prosecutors-seek-360-million-after-bhpvales-samarco-dam-failure-20151114-gkz4o4.html
Cheers. The Leggie