Chinese hard landing proceeds apace

A seriously behind the curve Goldman Sachs is still trying to defend its capital-devouring long commodity call. Having completely missed the severity of the China slowdown, and associated commodity crash, it now says a rebound is imminent:

We have to add to the mix a combination of weather related disruptions, rising regulatory risk andthe material downside in the July data–which was evident across almost all sub-categories inboth consumption and industrial production data…so the question is what to make of thetrajectory, Delta aside?? WHILST ECONOMIC ACTIVITY IN CHINA WILL REMAIN SOFT IN AUGUST…ourEconteam see a policy support ramp up into Q4. They have trimmed their Q3 real GDP forecastslightlyfurther, to 5.1% yoy / 1.3% qoq ann (vs. 5.4% / 2.3% previously) but expect a rebound insequential growth on economic reopening and government support in September andQ4. Bottom line, they expect a nice cocktail of monetary and fiscal stimulus to save theday…they look for fiscal spending to pick up significantly and for policymakers to implementvarious sector-level regulations in a coordinated manner…amplified by liquidity provision fromanother RRR cut. Such monetary and fiscal policy coordination canhelp provide a floor togrowth. Indeed, there are signs that the market is starting to reprice China growth prospectshigher recently (e.g. the oil rally)…but underlying pessimism remains and a policy response ofthe order that our team expects is not intoday’s price.

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