China - PBoC on hold, May data mixed

China Macro: May data show better than expected retail sales, but other data disappoint

This morning, China’s May activity data were published. On balance, the data confirmed that China’s recovery is still quite unbalanced and hampered by headwinds, particularly from ongoing property weakness. That said, the most eye-catching outcome was for retail sales, which accelerated to 3.7% yoy (April: 2.3%) and came in stronger than consensus (3.0%). In monthly terms, retail sales picked up to 0.5% mom (April: 0.1%). That said, these numbers were boosted by a long holiday in May, and may be followed by payback later on, so it’s too early to be too enthusiastic about these numbers.

Meanwhile, industrial production slowed to 5.6% yoy (April: 6.7%, consensus: 6.2%), and to 0.3% mom – following a surge in April (1.0%). Fixed investment slowed to 4.0% yoy ytd in January-May (Jan-April/consensus: 4.2%), dragged down by property investment. All in all, property sector data remain lacklustre, with both investment and housing sales still deeply in contraction territory and both new/used home prices dropping at a relatively steep monthly pace. The jobless rate was stable at 5.0%, in line with expectations. All in all, Bloomberg’s monthly GDP estimate suggests a cooling of annual growth in May, to 6.1% (April: 6.5%).

PBoC on hold

This morning, the PBoC left the 1-year medium-term lending facility rate unchanged at 2.50%. This was in line with consensus expectations, including ours. We still expect the PBoC to come with further (mini) policy rate cuts and RRR cuts in the coming months to help prop up sluggish domestic demand, also given the still subdued pace of inflation. This would also be in line with what has been signaled recently in official statements. Still, with Fed rate cut expectations having been delayed and the yuan still at relatively weak levels versus USD, consensus expectations including ours was for the PBoC to wait for another month or so. Now that the PBoC kept the 1-yr policy rate on hold today, we also expect the 1-year loan prime rate to be maintained at 3.45% coming Thursday – in line with consensus.