Disappointing data from China and Japan – BBH

Analysts at BBH point out that the Japanese economy practically stagnated in the last three months of 2017 as it has begun the new year on weak footing.  

Key Quotes

“Consider January retail sales.  The 1.8% drop in the month was three-times more than expected and is worth six months of sales at the average monthly gain in 2017 (0.3%).   Industrial output slumped 6.6% in January.  It is the largest decline since 2011.  The market had expected around a 4% fall after December's 2.9% gain.”

“China disappointed as well.  The official February PMI readings were weaker than expected.  The manufacturing PMI eased to 50.3 from 51.3 and new export orders fell for the second month in a row.  Factory employment declined for a fourth month (48.1).  The non-manufacturing PMI slipped to 54.4 from 55.3.  The result is a composite reading of 52.9 (from 54.6) which is below last year's lows.  Small businesses were especially weak and this warns of downside risk to the Caixin PMI due out on Thursday in China.  While it is tempting to dismiss the weakness due to the Lunar New Year, we suggest the holiday exaggerated some trends that are already in place.”

“Just as China announced it was sending a high placed economic adviser for President Xi to the United States, the US Commerce Department charged Chinese aluminum foil makers with getting unfair subsidies and dumping their product in the US.  This is separate from the pending decision on aluminum and steel on national security grounds.  The Commerce Department wants to charge duties for both the dumping and to offset the unfair subsidies.  The US imported about $390 mln of aluminum foil in 2016 from China, according to reports.  In an unusual step, it was the government that reportedly led this charge rather than industry, though domestic producers have complained about Chinese competition.”