Waiting for polices to take effect

Key Points

• Performances of China’s key macroeconomic indicators in November were mixed. Industrial production and fixed asset investment expanded month-over-month at a faster pace, while retail sales actually contracted by -0.06%mom, despite of its accelerated 10.1%yoy growth in the month.
• November data showed that Property market still not stabilized yet. Property investment declined by 6.1%mom in November after its 16.6%mom decline in October, and property sold expanded only by 0.8%mom after its 25.9%mom contraction in October. Floor-space-started (17.4%mom), floor-space-under-construction (17.3%mom) and floor-space- completed (56.5%mom) rebounded, after their large contractions in October (except for floor-space-completed).
• China’s deflationary pressure appeared more worry-some, by looking at the sequential change of prices. Headline CPI, core CPI, food and non-food and service prices, all declined in November, ranging from -0.3%mom to -0.9%mom.
• A -0.5%yoy November CPI inflation and a deepened PPI deflation renew market’s fear of deflation, and rising real interest due to it necessitates monetary easing. We maintain our view of 20~30bps rate cuts and 30~50bps RRR cut in 2024.
• We expect the USD/CNY to remain volatile or range bound around 7.1 (quoted as USD/CNY) in near term, as market may continue to worry about China’s lingering weak property sector activity and economic recovery, as it takes time for policy to take effects. We maintain our call for USD/CNY to reach 6.8 by the end of 2024.

MUFG PERIOD-END FORECASTS

Source: Bloomberg, MUFG GMR