Data from China over the weekend was poor, which, along with the poor results from last week's private and official PMIs indicate slowing economic momentum at the beginning of Q3:

China trade balance for July: $43.03bn surplus

  • expected $55.00bn, prior was $46.54bn

Exports -8.3% y/y, a very sharp drop from the previous month's reading, and well below expectations

  • expected -1.5%, prior was +2.8%

Imports -8.1% y/y

  • expected -7.9%, prior was -6.1%

And ...

CPI 1.6% y/y

  • expected +1.5% y/y, prior was 1.4%
  • For the m/m, up 0.3%

PPI -5.4% y/y

  • expected -5.0% y/y, prior was -4.8%
  • For the m/m, down 0.7%
  • Producer prices have been falling for a record 41 months

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We've seen rates cut four times between last November and the end of June.

MNI analysts argue (bolding is mine)

  • In as much as the government is politically tied to meeting this year's growth target of "around 7%," the weekend reports argue for more policy easing
  • The weekend data at least raise the possibility that July output, investment and retail sales data due from the NBS this week will also fall short of median forecasts

But, they say, the People’s Bank of China 'is in a bind'

  • Not because of inflation
  • But, the bank is constrained by the threat of capital outflows
  • A cut, and then depreciation could fuel outflows
  • China's foreign exchange reserves fell $42.5 billion in July (more here)
  • The yuan is up 14% on a real effective basis over the past 12 months
  • Proponents of a weaker currency could argue the stable exchange rate policy is doing real damage to the export sector

And the PBOC alone doesn't make monetary policy in China

  • The government has less appetite for rate cuts in the second half
  • Because of the uncertainties posed by a Fed rate hike they prefer targeted moves, like reserve requirement cuts for specific institutions in the market

MNI conclude .... (bolding mine)

  • But there's never any certainty with the Chinese policy outlook. Multiple agencies jostle for their policy goals to be taken up, and the PBOC is just one of the agencies in the mix
  • PBOC may continue to fight its corner and resist rate cuts or even calls to weaken the yuan exchange rate, but it's a fight that may prove ever more challenging as the economic data continues to weaken

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So, what's gonna happen?

Given the PBOC is not 'independent' to the degree many of the central banks we talk about are, its very hard to call.

I reckon more fiscal outlays, and more targeted policies. But, a wider rate cut is going very hard to resist.