Via ZH comes analysis from BofAML:
…while M0-M2 also came in well below consensus, it was RMB deposits which crashed by RMB1980bn in July, versus a 3790bn increase in June, indicating a major change in what until recently had been a virtually diagonal data series.
…with such a shock in money and credit data in July, markets’ first response is that there has either been a sudden credit tightening, intended or unintended, or a sudden drop in credit demand. However, based on all government policy talks and all policy benchmarks including interbank rates, we see no such intention or action on credit tightening at all. Instead, the government repeatedly emphasized delivering stable economic growth by maintaining its existing monetary policy stance. On the other hand, most leading and coincident indicators point to stable, if not improving, aggregate demand in July.”
“Our conclusion is that the big fluctuations in loans, deposits and TSF were just consequences of the outdated monetary statistics which are heavily distorted by unique regulations, financial innovations and some recent new accounting rules related to shadow banking.
We believe that monetary policy has not been tightened, underlying credit growth is actually quite stable, new loans and TSF could see a large rebound in August, and headline money and credit growth are likely to jump in August. In anticipation of the market impact, the PBoC made a public explanation post the July data release with messages broadly in line with our views. The PBoC in particular mentioned that entering into August, new loans averaged between 30bn to 50bn per day, which supports our belief that new loans could jump to RMB700bn – RMB1.0tn and TSF could be back to above RMB1.0tn in August.”
Total Social Financing was 859 billion last August so these figures if delivered would be some reassurance but no tearaway rebound, especially since if averaged over three months the figure would still be down materially year on year. And from the PBOC itself:
The PBoC believes credit and aggregate financing growth is still in a reasonable range after adjusting for seasonal factors, irregular issues and base effects. The PBoC said in its statement that China’s daily new RMB loans were RMB30-50bn in early August, suggesting robust (normalized) credit growth in August. The jump in deposits in June and subsequent decline in July resulted from seasonal factors, which in turn led to the rise and fall of loans (note the CBRC does a serious mid-year assessment with a focus on loan to deposit ratio, forcing banks to ramp up deposits at the end of June). The fluctuation was widened by the rapid growth in bank wealth management (WMPs) and internet-based money market funds. IPOs in July also diluted some deposits, which in turn constrained growth in bank loans and other types of credit such as entrusted loans and bonds. In addition, growth of non-standard financing was curbed by new regulations introduced and financial institutions strengthening their risk control. The PBoC did see some impact from the demand side. With the economy facing downward pressure and corrections in the property market, effective loan demand is not as strong as before. Banks are more cautious in granting loans to some high risk regions and sectors.
So there you have it. Looks like it’s a combination of seasonality, technical adjustments and weak demand. Better than it might have been but nothing to change my conclusion from this morning that the data is another blow to bulk commodities over the stretch. Meanwhile, miners are rebounding this afternoon on a shorter term that looks better as the seasonal soft patch for steel passes.
