China: July PMI and commodities point to rebound - Danske Bank

According to analysts from Danske Bank, the latest leading indicators point toward a rebound in China, but they still see a slowdown ahead.

Key Quotes: 

“The latest round of PMI data for July as well as rising commodity prices point to a mid-year rebound in Chinese activity. This is a bit at odds with most of the leading indicators we follow. We believe that this will prove to be a mini cycle within the bigger cycle of a moderate slowdown as financial tightening should slow growth eventually. However, the data does point to reduced downside risks.”

“The strength in Chinese activity is due partly to still strong exports, but construction and housing have also remained robust despite tightening measures. A lift to infrastructure projects ahead of the 19th National Congress of the Communist Party this autumn may also be behind the rebound.”

“Most leading indicators point to a moderation of activity. Credit growth has declined significantly and output indicators such as electricity generation and steel output are also weaker. Exports to China from commodity exporters such as Chile and Australia are also weaker.The latest round of PMI data for July as well as rising commodity prices point to a mid-year rebound in Chinese activity.”

“This is a bit at odds with most of the leading indicators we follow. We believe that this will prove to be a mini cycle within the bigger cycle of a moderate slowdown as financial tightening should slow growth eventually. However, the data does point to reduced downside risks.”