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China Credit Creation Craters, Sparking Speculation Of A Growth, Stock Bounce

China Credit Creation Craters, Sparking Speculation Of A Growth, Stock Bounce

While we wait for China’s economic data dump due Monday, when…

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China Credit Creation Craters, Sparking Speculation Of A Growth, Stock Bounce

While we wait for China's economic data dump due Monday, when industrial production and retail sales are expected to crater to deep negative territory as a result of the ongoing covid lockdowns, this morning we got a harsh reminder just how hard the world's 2nd biggest economy has been hit when Beijing reported that April total social financing and RMB loans came in much below market expectations, even as M2 growth accelerated and was above market expectations on the back of the RRR cut and more expansionary fiscal policy stance.

Here are the details:

  • New CNY loans: RMB 645.4 bn in April, badly missing consensus of RMB 1520bn. Outstanding CNY loan growth: 10.9% yoy in April vs March 11.4% yoy; Overall CNY loans growth decelerated materially and grew 6.6% mom annualized sa from 18.1% in March.
  • Total social financing RMB 910bn in April, badly missing consensus growth of RMB 2200bn; Total social financing (TSF) was well below expectations after a strong acceleration in March. The sequential growth of TSF stock decelerated to 3.9% mom annualized in April, the slowest sequential growth in the past decade.
  • TSF stock growth was 10.2% yoy in April, slower than the 10.6% in March. The implied month-on-month growth of TSF stock decelerated to 3.9% from 14.4% in March.
  • M2: 10.5% yoy in April vs. above consensus of 9.9% yoy. March: 9.7% yoy; M2 year-on-year growth accelerated on the other hand to 10.5% yoy in April, vs 9.7% in March, and expanded by 13.8% in month-over-month annualized terms, vs 24.4% in March.

Among major TSF components, shadow banking credit continued to contract in April at a much faster pace compared with March. Trust, entrusted loans and undiscounted bankers’ acceptance bills fell RMB275bn in April, vs the RMB113bn contraction in March. Based on loans to different sectors, weakness in loan growth was broad-based, with the only exception being bill financing. Corporate mid-to-long term loan growth was 6% vs 22.5% mom annualized in March. Corporate bill financing rose strongly by 102.4% mom annualized from 97.3% in March. On loans to households, total household loans declined by 1.7% month-over-month annualized, vs an expansion of 6.6% in March. PBOC changed their categorization of household loans and now focuses on usage of loans (housing related vs consumption related, for example), rather than by maturity. April data are thus not strictly comparable with March data. However, on a net basis, new mortgages were -61bn RMB in April, in comparison with household new medium to long term loans (which are mostly mortgages) of 492bn RMB in April 2021, or +374bn RMB in March 2022 (NSA basis). Government and corporate bond issuance also slowed in April.

According to Goldman, "the composition of RMB loans suggests corporate loan growth decelerated and household loans stock declined in April", which is painfully obvious of course. The question is why, and according to the PBOC, credit demand tumbled due to the Covid resurgence which was cited as one main reason behind the weak RMB loans and TSF data. Medium to long term loan growth was still much slower than short term loans (such as bill financing) growth, and loans to the real economy was also much lower than overall RMB new loans (which include lending between financial institutions). "These all implied very weak credit demand despite monetary policy easing", according to Goldman.

What does China's collapsing credit data means? Well, as Bloomberg's Simon White writes, liquidity and lending data in China looks to be forming a trough, which points to a bottom in growth and stocks. However, there are two important caveats:

  1. growth is likely to be lower than its previous trend as internal imbalances rise again; and
  2. any growth is vulnerable to a wage-price spiral if CPI takes off.

Echoing what we wrote above, White writes that on the surface, April lending data for China released today looked dismal, showing a Covid-driven slump for aggregate financing and new CNY loans, "but monthly numbers are noisy and impacted by seasonal effects. Looking at the 1-year aggregate sum’s change over the last year gives a more stable picture, and on this basis new CNY loans look to be bottoming."

Meanwhile, today’s announcement that China will build more Covid hospitals and increased testing suggests they are making the first steps towards “endemicity”, or living with Covid according to White. Moreover, the PBoC has recently introduced new relending programs and further loosened restrictions to aid beleaguered property developers. Lending going forward should thus begin to pick up steam, which points to growth soon turning up.

Still, the total figures mask the sharp decline in lending to the household sector, in a sign imbalances are worsening again. As the Bloomberg strategist explains, a key feature of China’s economy has been to repress the household sector to the benefit of the export-orientated corporate sector. The household sector is a net importer so inhibiting its demand widens the trade surplus. Further household repression has resulted in even larger trade surpluses through the pandemic, which China must foist upon the rest of the world.

Of course, the flipside of trade surpluses is capital outflow, and capital outflow from China has been depressing domestic credit (it will also soon prove a major tailwind to bitcoin once Chinese households with $35 trillion in deposits realize more devaluation is coming and scramble to park their capital offshore using the only possible mechanism available). Rising trade surpluses and falling FX reserves (some of which is due to the rising dollar and rising US yields) betray increasing capital leakage. In an economy with a managed exchange rate and capital controls, capital outflow leads to a destruction of domestic credit.

This is why the yuan has been allowed to weaken, as it lessens the fall in domestic credit from capital outflow. However, as White warns, it also adds to imbalances, and globally it requires a greater trade deficit in the US. These are bad for China’s and the US’s growth in the medium term.

Bottom line: growth in China should soon bottom, but rise at a slower pace than before. Nevertheless, all bets are off if food prices drive an acceleration in China’s CPI - the way they did in 2011 - risking a wage-price spiral, a significantly weaker yuan, and a rise in global trade protectionism.

Tyler Durden Fri, 05/13/2022 - 15:05

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Best Day For Discretionary Stocks Since COVID-Crash As Consumer Recession Bets Get Steamrolled

Best Day For Discretionary Stocks Since COVID-Crash As Consumer Recession Bets Get Steamrolled

A week ago, following dismal guidance by Walmart,…

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Best Day For Discretionary Stocks Since COVID-Crash As Consumer Recession Bets Get Steamrolled

A week ago, following dismal guidance by Walmart, Target indicated that it is seeing a shift in the consumer wallet away from the pandemic purchases and into reopening purchases - including apparel - and the pace of this shift caught some retailers off guard on inventory. WMT, COST, and TGT all saw their stocks fall sharply last week as investor concerns around a US consumer slowdown mounted and investors reconsidered just where, if anywhere, you can play "defense" in the current market.

But as Goldman's Chris Hussey writes today, this week, results from companies like DKS, Macy's, JWN, WSM, DLTR, and DG painted a decidedly different picture.

Deep discount retailers Dollar Tree - or rather Dollar 25 Tree - and Dollar General both posted strong results and DLTR raised top-line guidance.

Which isn't surprising: as we discussed in "Middle Class Is Shutting Down As Spending By The Rich Remains Robust" when consumers are trading down - as they are doing now due to Biden's runaway inflation - dollar stores see more business.

As a result, Dollar Tree surged as much as 20% on Thursday, the biggest intraday move since October 2020. Evercore ISI said Dollar Tree's move to a "$1.25 price point" last November from $1 “came in the nick of time" adding that "given the broad-based inflationary cost pressures, the 25% price increase drove material sales and margin upside for both the namesake division and the total company," wrote analyst Michael Montani who also said that while freight, transport, and labor headwinds are real, some of the pressure cited by Target last week was likely company specific.

The analyst concluded that the read-across from DG and DLTR is “favorable,” and it seems that the low-end consumer is “hanging in better than initially thought.” Or rather, the middle-class is getting crushed and it has no choice but to trade down to the cheapest retail outlets.

And with countless shorts having piled up and getting massively squeezed, the S&P 500 Consumer Discretionary Index today has risen as much as 5.6%, its best day since April 2020, as optimism on the health of the consumer returns following a string of better-than-expected earnings reports from retailers.

Top performers in the S5COND index include Dollar Tree, Dollar General, Norwegian Cruise, Caesars Entertainment and Carnival; the Discretionary Index is on pace for its best week since March 18, when the group climbed 9.3%; the index sank 7.4% as Walmart and Target reports spooked investors. The index is still down almost 30% YTD.

"Retail earnings are bullish.... with four blow-outs,” said Vital Knowledge’s Adam Crisafulli, referring to quarterly reports from Williams-Sonoma, Macy’s, Dollar General, and Dollar Tree.  “The overall retail industry is experiencing stark changes and the market is incorrectly conflating these shifts with underlying demand weakness when the actual health of the consumer is much better than it seems,” Crisafulli says, although there are many - this website included - who wholeheartedly disagree with his optimistic view of the US consumer.

Remarkably, thanks to today’s rally, even Burlington Stores, which sank as much as 12% in premarket on disappointing results, is trading up as much as 11% and some say, the rally helped reverse the earlier tumble in NVDA shares.

The discretionary group is also getting a boost from airline operators Southwest and JetBlue, helping travel-related names, while on the economic front, better-than-expected personal consumption (for the revised Q1 GDP print). and jobless claims may be adding to the bullishness according to Bloomberg.

Tyler Durden Thu, 05/26/2022 - 15:00

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Restaurants’ Share Of Food-Dollar Grows To Record 54.9% In April

Restaurants’ Share Of Food-Dollar Grows To Record 54.9% In April

By Nation’s Restaurant News

Restaurants continued to increase their share…

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Restaurants' Share Of Food-Dollar Grows To Record 54.9% In April

By Nation's Restaurant News

Restaurants continued to increase their share of spending in April, reaching 54.9% of the food dollar, according to U.S. Census data released Tuesday. That was a 260-basis-point increase from April last year, when the share was 52.3%, said analyst Mark Kalinowski, president and CEO of New Jersey-based Kalinowski Equity Research LLC.

“Even more impressively, as best as we can tell, this 54.9% market share figure for April 2022 is an all-time monthly high for the U.S. restaurant industry,” Kalinowski said in a note released Tuesday about the April U.S. Census data.

Kalinowski said restaurants, especially multi-unit public chains, were increasing prices but at a more modest rate than retail groceries.

“The key takeaway from this is you have a lot of menu prices going up in the restaurant industry,” he said in an interview.

“And, of course, the fear anytime you're raising your menu prices is that customers will trade down, but that hasn’t happened.”

Kalinowski noted that while restaurant brands were increasing prices, the rate of hikes was less than in grocery prices.

“If you need to eat — and I haven't yet met the person who didn't need to eat — you have got to buy the food from some place unless you're growing it yourself or you have a neighbor who grows it,” he said. “The fact is the restaurant industry offers a lot of convenience. It offers experiences that the grocery stores can't match.

“It is so firmly a part of the American fabric now that Americans don't necessarily want to cut their restaurant spending,” Kalinowski said.

The analyst also noted that larger restaurant brands were being very calculated in how they were raising prices to offset their increased commodity and labor costs.

For example, Kalinowski noted, “McDonald's looks at the food at home inflation and takes that into account with their menu pricing. I would imagine there's definitely a lot of other chains out there that have gotten a little more sophisticated with how they take their menu pricing.”

Those judicious price increases are easier for large, multi-unit chains to institute than for independent restaurants, he noted.

“Independents lack the scale advantages that large chains have,” he said, “so part of the challenge for independence is, in the time of just big commodity cost inflation, how do you battle that. That's not saying it's easy for the large chains — it's hard on everybody just about.”

Over the past two years, he added, the industry has seen the largest shift toward big restaurant brands who are taking increased shares of what is a larger pie.

Census data for April calculated U.S. food services and drinking places posted $83.741 billion in sales, as compared to the April 2022 figure for U.S. grocery stores of $68.906 billion.

Kalinowski said it was intriguing that combined foodservice and drinking place sales with grocery sales had increased significantly from pre-pandemic levels.

“There seems to be meaningfully more spending on food/beverages than there was pre-pandemic,” he said. “The April 2022 combined number of $152.6 billion is 26.4% larger than the April 2019 combined number of $120.7 billion.”

This past April marked the 12th consecutive month for which that number was up more than 10% over the corresponding pre-pandemic monthly number, Kalinowski noted.

“We continue to look for restaurants’ market share in full-year 2022 to be at least one full percentage point higher than the full-year 2021 figure of [positive] 52.7%,” he said.

“All in all, this is good news for restaurant stocks — which tend to be comprised of the very largest restaurant concepts in most cases,” Kalinowski said in his note. “Large concepts have fared better than smaller chains and independents during the pandemic, creating the largest opportunity in decades for market-share gains within the restaurant industry favoring large chains.”

Tyler Durden Thu, 05/26/2022 - 13:40

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‘Insiders’ Are Buying This Dip

‘Insiders’ Are Buying This Dip

The Nasdaq is in the middle of its worst drawdown since the Lehman crisis and the Dow just suffered its longest…

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'Insiders' Are Buying This Dip

The Nasdaq is in the middle of its worst drawdown since the Lehman crisis and the Dow just suffered its longest losing streak in 99 years.

As that is happening, faith in The Fed is crumbling as Powell faces the central bankers' nemesis of stagflation... and all in an election year (threatening the confidence in The Fed's independence should it falter from its path of uber-hawkishness).

According to the latest BofA Fund Manager Survey, the grim 'market' has sent investors reeling with those equity funds tracked by EPFR Global suffering six straight weeks of outflows (the longest stretch of withdrawals since 2019), and cash levels among investors soaring to their highest level since September 2001.

Additionally, the BofA survey also showed that technology stocks are in the 'biggest short' since 2006.

The 'proverbial' dip-buyer appears to have abandoned hope as the strike on any Fed Put (at which Powell will fold like a cheap lawn chair over the pain) gets marked lower and lower.

But...

There is one group apparently, that is willing to dip a toe in the capital market deadpool - corporate insiders.

As Bloomberg reports, according to data compiled by the Washington Service, more than 1,100 corporate executives and officers have snapped up shares of their own firms in May, poised to exceed the number of sellers for the first month since March 2020 marked the pandemic trough two years ago.

The ratio has surged to 1.04 this month from 0.43 in April.

Notably, the insider buy-sell ratio also jumped in August 2015 and late 2018, with the former preceding a market bottom and the latter coinciding with one.

“It is a function of investors functioning at the '30,000 foot level' or 'macro' whereas insiders are functioning at the 'boots on the ground', company-fundamentals level,” said Craig Callahan, chief executive officer at Icon Advisers Inc. and author of 'Unloved Bull Markets'.

“We believe the company-fundamentals view is usually correct.”

Nicholas Colas, co-founder of DataTrek Research, is not as confident:

“All we know for sure is that the valuation of any stock or the entire market hinges on whether investor confidence in future cash flows is rising or falling. At present, confidence is falling,” he wrote in a recent note.

“This is not because stocks expect a recession. Rather, it is because the range of possible S&P 500 earnings power runs in a wide channel and can become wider still.”

Starbucks' Interim Chief Executive Officer Howard Schultz and Intel CEO Patrick Gelsinger are among corporate insiders who scooped up their own stock amid the latest market rout that took the S&P 500 to the brink of a bear market.

With their share prices plunging, we can't help but wonder if this 'buying' is mere virtue-signaling so that the board won't fire them for their absymal loss of market cap? 

Tyler Durden Thu, 05/26/2022 - 13:20

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