New credit, industrial output, fixed-asset investment and retail sales all picked up and exceeded economists estimates in March, while first-quarter economic growth matched forecasts for the slowest expansion since 2009. Signs the recovery is enduring into the second quarter may entrench a change in forecasts for monetary policy, with analysts already dialing back expectations for additional easing.
Two indexes published by the China Academy of New Supply-side Economics picked up for a second month. The Minxin manufacturing index rose to 46.9, the highest in a year, while the non-manufacturing gauge increased to 44.2 from 40.1 in March. Readings above 50 signal the environment is improving and those below indicate conditions are deteriorating.
China’s total debt rose to a record
China’s total debt rose to a record 237 percent of gross domestic product in the first quarter, far above emerging-market counterparts, raising the risk of a financial crisis or a prolonged slowdown in growth, economists warn.
Beijing has turned to massive lending to boost economic growth, bringing total net debt to Rmb163 trillion ($25 trillion) at the end of March, including both domestic and foreign borrowing, according to Financial Times calculations.
New borrowing increased by Rmb6.2tn in the first three months of 2016, the biggest three-month surge on record and more than 50 percent ahead of last year's pace, according to central bank data and FT calculations.
While the absolute size of China’s debt load is a concern, more worrying is the speed at which it has accumulated — Chinese debt was only 148 percent of GDP at the end of 2007.
“Every major country with a rapid increase in debt has experienced either a financial crisis or a prolonged slowdown in GDP growth,” Ha Jiming, Goldman Sachs chief investment strategist, wrote in a report this year.
The Tokyo Whale Is Quietly Buying Up Huge Stakes in Japan Inc.
They may not realize it yet, but Japan Inc.’s executives are increasingly working for a shareholder unlike any other: the nation’s money-printing central bank.
While the Bank of Japan’s name is nowhere to be found in regulatory filings on major stock investors, the monetary authority’s exchange-traded fund purchases have made it a top 10 shareholder in about 90 percent of the Nikkei 225 Stock Average, according to estimates compiled by Bloomberg from public data. It’s now a major owner of more Japanese blue-chips than both BlackRock Inc., the world’s largest money manager, and Vanguard Group, which oversees more than $3 trillion.
Under the BOJ’s current stimulus plan, the central bank buys about 3 trillion yen ($27.2 billion) of ETFs every year. While policy makers don’t disclose how those holdings translate into stakes of individual companies, estimates can be gleaned from publicly available central bank records, regulatory filings by companies and ETF managers, and statistics from the Investment Trusts Association of Japan. The BOJ declined to comment on Bloomberg’s findings.
To critics already wary of the central bank’s outsized impact on the Japanese bond market, the BOJ’s growing influence in stocks risks distorting valuations and undermining efforts to improve corporate governance. Proponents, meanwhile, say the purchases provide a much-needed boost to investor confidence. With the Nikkei 225 down 8.4 percent this year and inflation well below official targets, a majority of analysts surveyed by Bloomberg predict the BOJ will boost its ETF buying -- a move that could come as soon as Thursday.
The yen strengthened
The yen strengthened 0.6 percent to 111.09, after sliding 2.1 percent on Friday as Bloomberg reported the Bank of Japan may consider helping banks lend by offering a negative rate on some loans. Goldman Sachs Group Inc. said it expects further monetary easing at this week’s policy meeting.
“The BOJ is already so long into ‘the reflationary trade’ that it has to continue to deliver further accommodation for the time being,” Goldman strategists Silvia Ardagna, Robin Brooks and Michael Cahill wrote in a report. Authorities will likely focus more on asset purchases than on interest-rate policy and the yen will probably weaken to 130 a dollar in a year, they said.
Commodity declined
The Bloomberg Commodity Index declined for a third day, extending its retreat from a five-month high reached last week.
Crude oil dropped 1.6 percent to $43.05 a barrel in New York. Saudi Arabian Oil Co. will complete an expansion of its Shaybah oilfield by the end of May, allowing the world’s largest exporter to maintain total capacity at 12 million barrels a day, according to two people with knowledge of the plan. Iran has increased output by 1 million barrels a day since sanctions were lifted in January, Shana reported, citing Oil Minister Bijan Namdar Zanganeh.
Copper fell 0.5 percent in London, snapping a five-day winning streak. Aluminum dropped 0.2 percent, after recording its best week in more than three years on the back of signs of improving demand in China, the top user.
“Metals are correcting from recent gains,” said Li Li, a Shenzhen-based analyst from Jinrui Futures Co. “Copper is probably reaching its peak and wide-ranging fluctuations are expected.”
Oil falls as traders cash in after three weeks of gains
Currently, both crude benchmarks are seen extending to the downside, with WTI sliding -1.42% to $ 43.11 while Brent oil drops -1.09% to $ 44.58. Oil prices dropped in the Asian trades after having booked three straight weeks of gains, as traders appear to lock-in gains heading into global central banks’ action dominated week.
Fundamentals remain bearish and are set to deteriorate further, especially if prices move higher," Morgan Stanley said on Monday.
"A macro unwind (of its positions) could cause severe selling given positioning and the nature of the players in this rally," Morgan Stanley said.
Barclays bank said it was "not yet convinced that prices will remain here or go even higher" as fundamentals remained weak.
Reference: Bloomberg, CNBC, FXStreet, Reuters
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