McVEAN
Trading Trading & & Investments, Investments, LLC LLC
CHINA OUTLOOK: IMPROVING? FRANKFURT, GERMANY SEPTEMBER 30, 2019
Michael Drury Chief Economist McVean Trading and Investments, LLC
Past Performance Is Not Necessarily Indicative Of Future Results.
1
CHINA SHIFTS TO DOMESTIC FOCUS
38%
CHINESE EXPORTS VS IMPORTS AS A % OF GDP
33%
28%
23%
18%
13% 1 1 2 2 3 3 4 4 5 5 6 6 7 7 8 8 9 9 0 0 1 1 2 2 3 3 4 4 5 5 6 6 7 7 8 8 9 9 -0 -0 -0 -0 -0 -0 -0 -0 -0 -0 -0 -0 -0 -0 -0 -0 r-0 p-0 r-1 p-1 r-1 p-1 r-1 p-1 r-1 p-1 r-1 p-1 r-1 p-1 r-1 p-1 r-1 p-1 r-1 p-1 r-1 p-1 a e a e a e a e a e a e a e a e Q2 ar ep ar ep ar ep ar ep ar ep ar ep ar ep ar ep aEXPORTS a a M S M S M S M S M S M S M S M S M Se M Se M SIMPORTS M S M S M S M S M S M S M S M Se19
Past Performance Is Not Necessarily Indicative Of Future Results.
2
PRIVATE SECTOR BEARS THE BURDEN
Past Performance Is Not Necessarily Indicative Of Future Results.
3
2016 CHINA + HONG KONG EXPORT PIE $2.0 TRILLION
PACIFI C RIM
NORTH
AMERI CA
30%
PAC RIM EUROPE NORTH AMERICA SOUTH ASIA MENA LATIN AMERICA OTHER
EUROPE 24%
22% Past Performance Is Not Necessarily Indicative Of Future Results.
4
2016 US EXPORT PIE $1.5 TRILLION
OTHER 23%
NORTH AMERICA 34% NORTH AMERICA WESTERN EUROPE PACRIM OTHER
PAC RIM 25%
EUROPE 18%
Past Performance Is Not Necessarily Indicative Of Future Results.
5
LAST TARIFF ROUND WAS THE ONE CHINA FEARED MOST
YOU START WITH THE LOW HANGING FRUIT SOLAR & WASHING MACHINES
STEEL & ALUMINUM
25% ON $50 B
10% ON $200B
$36B, THEN $14B
25% ON JAN 1
15% MORE ON THE SAME $200B
INDUSTRIAL PARTS & CHEMICALS
CHINA TIT FOR TAT RESPONSE
25% ON $50 B MOSTLY AGRICULTURE
10% TO 25% ON $60 B
5% TO 25% ON ANOTHER $60B
Past Performance Is Not Necessarily Indicative Of Future Results.
6
NEW TARIFFS WILL LIFT US PRICES
Past Performance Is Not Necessarily Indicative Of Future Results.
7
AND NEXT $325 B LANDS OUTSIDE CHINA
Past Performance Is Not Necessarily Indicative Of Future Results.
8
ALTERNATIVES TO CHINA?
Past Performance Is Not Necessarily Indicative Of Future Results.
9
NEXT GENERATION FOR INDUSTRY
Past Performance Is Not Necessarily Indicative Of Future Results.
10
CHINA FISCAL STIMULUS HAS BEEN SUBSTANTIAL • • • • • • • • • •
Infrastructure -- mostly high speed rail -- raised by $80 billion Middle class income taxes and new deductions for key services Lowered interest rates and reserve requirements Pulled forward $220 billion in state government lending Small business loans increased Tariffs reduced (even for US) and export rebates increased Promised $300 billion in stimulus at National Congress Cut VAT from 1% to 3% depending on product $45 billion in new tax and fee reductions passed on April 15 th Changed definition of prime rate to lower costs for SME
• Cumulative over 4% of GDP since mid-2018
Past Performance Is Not Necessarily Indicative Of Future Results.
11
CHINA MONTHLY CAR SALES (SEASONALLY ADJUSTED BY MCVEAN TRADING)
32
30
28
26
24
22
20
18
16
3 MO AVG
CURRENT MONTH
Aug-19
Past Performance Is Not Necessarily Indicative Of Future Results.
12
CHINA RETAIL SALES
3 MONTH AVERAGE % CHANGE FROM PRIOR 3 MONTHS; SAAR* 25%
20%
15%
10%
5%
0%
-5%
*Seasonally adjusted by Mcvean Trading
TOTAL
Past Performance Is Not Necessarily Indicative Of Future Results.
EX AUTO
Aug-19
13
QUARTERLY INDUSTRIAL PRODUCTION 3 MONTH AVERAGE % CHANGE FROM YEAR AGO
20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0%
Aug-19 Past Performance Is Not Necessarily Indicative Of Future Results.
14
CHINA CREDIT LEADS THE WORLD ECONOMY
2000
CHINA SOCIAL FINANCING VS US & EUROPEAN PMI
60
1750 55 1500
1250
50
1000 45
750
500 40 250
0
35
06 06 06 07 07 08 08 08 09 09 10 10 11 11 11 12 12 13 13 13 14 14 15 15 16 16 16 17 17 18 18 18 19 n- un- ov- pr- ep- eb- ul- ec- ay- ct- ar- ug- an- un- ov- pr- ep- eb- ul- ec- ay- ct- ar- ug- an- un- ov- pr- ep- eb- ul- ec- aya J D M O M A J D M O M A J D M A S F J J N A S F A S F J J N J J N CHINA SOCIAL FINANCING (12 MO AVERAGE) AVERAGE OF EUROPE & US PMI (3MO AVG) July-19
Past Performance Is Not Necessarily Indicative Of Future Results.
15
CHINA LEADS THE GLOBAL MANUFACTURING China, Eurozone and US PMI 65
54
60
52.5
55
51
50
49.5
45
48 Eurozone
US
CHINA
Past Performance Is Not Necessarily Indicative Of Future Results.
Jul-19 16
CHINA & US EQUITIES HAD REBOUNDED
5000
3000
4500 2500 4000
2000
3500
3000
1500
2500 1000 2000
1500
500
SHANGHAI COMPOSITE
S&P 500
Past Performance Is Not Necessarily Indicative Of Future Results.
July 19 17
CHINESE RAILROAD FREIGHT VS ELECTRICITY PRODUCTION 3 MONTH AVERAGE % CHANGE FROM YEAR AGO 3 MONTH AVERAGE
30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% -20.0%
RAIL
ELECTRICITY PRODUCTION
Past Performance Is Not Necessarily Indicative Of Future Results.
June-19
18
CHINA EXPORTS VS IMPORTS
6 MONTH AVERAGE %CH FROM 6 MONTH AVERAGE YEAR AGO 66.0%
49.5%
33.0%
16.5%
0.0%
-16.5%
-33.0% 0 0 1 1 2 2 3 4 4 5 5 6 7 7 8 8 9 9 0 1 1 2 2 3 4 4 5 5 6 6 7 8 8 9 -0 g-0 r-0 t-0 y-0 c-0 l-0 b-0 p-0 r-0 v-0 n-0 n-0 g-0 r-0 t-0 y-0 c-0 l-1 b-1 p-1 r-1 v-1 n-1 n-1 g-1 r-1 t-1 y-1 c-1 l-1 b-1 p-1 r-1 n u u u a c p a c p a c Ap Ja Au M O Ma De J Fe Se A No Ju Ja Au EXPORTS M O Ma De J Fe IMPORTS Se A No Ju Ja Au M O Ma De J Fe Se Jul-19
Past Performance Is Not Necessarily Indicative Of Future Results.
19
CHINESE PPI BOTTOMING?
15
CHINA PPI CHANGE FROM SAME MONTH A YEAR AGO
10
5
0
-5
-10
Jul-19 Past Performance Is Not Necessarily Indicative Of Future Results.
20
MANAGING THE FREE FLOATING YUAN CORRUPTION CAMPAIGN CURRENCY BREAK
UR
EU CRISIS
AD TR
CO RE
RE T
RECESSION PRE LEHMAN
N
OOPS
RY VE
E
SCHUMER
Past Performance Is Not Necessarily Indicative Of Future Results.
21