Keith McCullough: The top thing in my notebook this morning is China. China has horrendous economic data. For those of you who are data dependent versus narrative dependent. We’re trying to push the data and push the process.
There was a lot of red in the Chinese economic data. In last night’s MAY high-frequency data was a slowdown in Industrial Production growth, which decelerated to a 17-year low of 5.0% YoY. This MAY figure is the slowest RoC in Chinese manufacturing growth since December 1991.
Whether you look at Fixed Assets Investment on an aggregated basis (-50bps to 5.6% YoY), through the lens of the property market (-70bps to 11.2% YoY), via private enterprises (-20bps to 5.3% YoY), via public enterprises (-60bps to 7.2% YoY), or through the prism of “stimulus” in something like infrastructure (-40bps to 4.0% YoY), it’s clear that tight monetary policy continues to weigh on the “I” component of the C + I + G + NX calculus on the mainland.
McCullough: Don’t forget that for everyone who’s been perpetually bullish on stocks, China was a big part of their bull case. The Hang Seng is teetering on crash mode. It’s down -18.2% from where the Chinese economic cycle peaked.
In late 2017, the Chinese economy started to signal that it was slowing. By the time we got to 2018, for those of you who were subscribed to our process back then, you know that’s when we went bearish on China, Europe and Emerging Markets. All those things were process based.
What we’re saying now is that the Chinese economy A) continues to slow and B) the market agrees with that via the Hang Seng.