After an unprecedented surge in Chinese attempts to stimulate the economy in late 2015, mostly on the fiscal side, coupled with recent monetary easing by the PBOC which cut the banks' reserve ratio recently and unleashed a tsunami of new loan creation in January, many expected that this unprecedented credit impulse would translate into at least a modest rebound for the economy, prompting a stable pick up in spending for the economy which many are touting is now consumer-spending driven as opposed to export and production.
At the end of 2014, the U.S. was the only bright spot among the world’s major economies. Chinese growth was slowing, Europe was flirting with deflation, and Japan was crawling out of recession. But last year’s standout economy has fared much worse in 2015. Revised figures show that US GDP shrank 0.7 percent in the first quarter.
Following an unprecedented credit expansion by China, which in the first few months of 2016 injected well over a trillion dollars in total credit, the payback - as previewed here - is coming. As reported earlier, overnight China reported that a swath economic activity, from factory output to investment and retail sales, slowed last month, reflecting renewed weakness in China’s economy.
The Chinese government's anti-corruption campaign hit luxury shops hard as the gifting expensive items for company executives dwindled — but spare a thought for the country's corporate caterers. The sector was almost wiped out in a stroke when the reforms were announced in 2012, as companies put an end to extravagant parties. Analysts from Merrill Lynch show this in one great chart. Here's what happened:
It was another day of ugly overnight macro data, all of it ouf of China, with industrial production (8.6%, Exp. 9.5%, Last 9.7%), retail sales (11.8%, Exp. 13.5%, Last 13.1%) and fixed asset investment (17.9% YTD vs 19.4% expected) all missing badly and confirming that in a world of deleveraging, the Chinese economy will continue to sputter.
To understand why the retail sector will continue to be such an investment minefield consider just two phrases: Black Friday and Cyber Monday.
The latter, the mock tradition of buying stuff online when the boss isn’t watching on the Monday after Thanksgiving, is emblematic of the forces challenging a retail industry much of which was built for a U.S-centered cars, parking lots and box store paradigm which makes less and less sense every day.