China: Short-term weakness, but no hard landing – Danske Bank

Danske Bank analysts are holding the view that Chinese PMIs are set to remain weak in the short term, but there is no sign of a hard landing.

Key Quotes

“On the other side of a trade deal, the economy should recover again.”

“Leading indicators are a bit mixed

1. Lower yields still point to a lift to home sales. Construction also supported by low inventories.

2. Metal prices have softened but not collapsed.  Points to weakness but not a sharp slowdown.

3. Credit impulse stable but not yet recovered.

4. PMI exports have weakened again. Global slowdown and trade war cause strong headwind.”

“Policy outlook

The re-escalation of the trade war caused new headwinds. Despite a ceasefire, we expect talks to be difficult leaving uncertainty in place for some time. We expect a deal to be struck at some point in H2.

We expect a cut in the Reserve Requirement Ratio, more targeted lending and more consumer stimulus.”

“Chinese market outlook

Chinese stocks are capped for now by trade war uncertainty. Long term, we are positive.”

“We expect USD/CNY to move higher before turning lower when a trade deal is in sight.”