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Stocks at Risk as Weak Data from China Stokes Fear of Global Recession

By:Ilya Spivak

China is set to release a slew of data showing the world’s second-largest economy remains anemic. That’s troubling as global recession looms.

  • Chinese lending and credit data will underscore tepid monetary stimulus efforts.
  • A pickup in exports growth leaves a worrying trend intact for Chinese trade data.
  • China’s deepening deflation speaks to the growing risk of a global recession.

Chinese lending and credit: much ado about nothing?

Credit and loan growth figures are first up. A modest increase in new loans from 1.09 trillion to 1.23 trillion Chinese yuan (CNY) is expected for December. Nevertheless, aggregate financing is seen ticking lower, from 2.45 trillion to 2.2 trillion yuan. While this would amount to a seemingly large rise of over 65% year-on-year, such swings seem to be within normal volatility.

On balance, the outcomes expected would amount to little more than ongoing tinkering at the margins. More broadly, Chinese financial conditions have stabilized in restrictive territory since mid-2023, and policymakers in Beijing seem disinclined to do much to loosen them. That may be a lingering headwind to economic growth.

china loan financing

China trade: who’s buying?

From there, the spotlight turns to trade and inflation figures. Forecasts for the former see exports growth accelerating to post the largest rise since March 2023 at 0.9% year-on-year. Imports are expected to fall 0.5% as domestic demand remains soft but at a slower pace than the 0.6% decline in November.

A pickup in cross-border sales would be welcome news, but it will take more than the tepid results penciled in by economists to dislodge a three-year slide in bilateral trade amid the COVID-19 pandemic. In fact, leading purchasing managers’ index (PMI) data has the economy nearly stopping in December, with the weakest growth in a year.

china trade activity

Chinese inflation: going the wrong way

The signaling from price growth data is far more troubling. Consumer price index (CPI) and producer price index (PPI) numbers are expected to show deepening deflation in December, sliding 0.7% and 3.2% year-on-year, respectively. Falling prices speak to anemic demand, implying acute underlying weakness in the world’s second-largest economy.

That’s bad news for the world economy, of which China is a hefty 16%. Global economic activity is already near standstill as the U.S. has slowed to a crawl while the Eurozone is probably in recession already. Persisting weakness in China may be just the thing to tip the scales into a system-wide contraction.

Analytics from Citigroup show that Chinese economic data outcomes have converged on baseline forecasts in recent months. Stock markets may wobble if this suggests incoming results that stoke fears of broad-based business cycle weakness. Meanwhile, bonds may diverge higher while the anti-risk U.S. dollar and Japanese yen trade higher.

china inflation

Ilya Spivak, tastylive head of global macro, has 15 years of experience in trading strategy, and he specializes in identifying thematic moves in currencies, commodities, interest rates and equities. He hosts Macro Money and co-hosts Overtime, Monday-Thursday. @Ilyaspivak 

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