The Day at a Glance | Aug 15 2022

The Top

*China`s slowdown deepened during July: The People`s Bank of China surprisingly cut interest rates.

*Economists estimate a 60% chance of a recession in the Eurozone next year.

*The Ministry of Finance and Public Credit decreased fiscal stimulus for Magna gasoline to 94.12%, and to 72.34% for Premium gasoline.

Economic environment

China`s strong slowdown raises concerns. China`s economic slowdown deepened during July as a result of the real-estate sector`s crisis and persistent quarantine measures implemented in the country. Retail sales (2.7% annual), industrial production (3.8%) and investment (5.7% YTD) set below estimates, while the unemployment rate for young workers (16-24 years old) increased to its highest level in history (19.9%). The data confirms a loss of momentum in economic recovery after quarantine measures halted the country during April and May. The most concerning factor has been the slowdown in investment, which suggests that the real-estate sector`s negative impact is worse than previously expected. Retail sales decreased an annual 28% and prices dropped for an eleventh consecutive month. This is impacting industries such as steel production, which has logged its slowest levels of activity since 2018. The data made public on Monday also points towards a strong decrease in consumer and business sentiment, while some quarantine measures have still been implemented during the month in regions like Hainan. Credit indicators logged a strong decrease during the month with new loans (which are growing at their slowest pace since 2017) and corporate bond issuances slowing down strongly despite the fact that monetary supply and liquidity is ample (M2 + 12% July). Financing data suggests that banks have liquidity but are not able to place credit in an environment of slow growth and affected by the real-estate crisis. With this context, the People`s Bank of China surprisingly decided to cut the one-year preferential loans rate in 10bp (2.75%) and the seven-day refinancing rate (2%). For many, the measure is not enough and more stimulus could be expected in the near future given the economy`s considerable weakness. China`s slowdown is also being passed onto Germany and South Korea through slower demand for manufactured goods.