China

As we highlighted (see here), China’s macro data for October 2017 was disappointing with retail sales and industrial production missing consensus estimates, fixed asset investment was in line and inflation surprised on the upside. There was some impact from state-driven efforts to reduce pollution, but this issue will be an ongoing headache for decades. In big picture terms, the challenge for the Chinese leadership is to deflate a credit bubble in an orderly fashion, something which we’re not aware has ever been done on this scale.

As we just detailed in great depth, China's credit growth is slowing at just the wrong time - as exemplified by last night's economic malaise and bond market weakness - and tonight we are starting to see it ripple through commodity and stock markets...

As we noted earlier, Chinese bonds are breaking key levels as China's credit impulse begins to weigh...

And tonight we are seeing that deleveraging pressure filter through to equity markets...

And even more so in the industrial commodities...

SO WHAT?

Submitted by Gordon Johnson of Axiom Capital

CREDIT LEADS “ALL OTHER” ECONOMIC DATA IN CHINA

China until recently euphoric credit growth, is rapidly grinding to a halt. As we published last week, and a key underpinning of our negative outlook on commodity prices through the remainder of 4Q17 and into 2018, the moderation in China’s credit seen more recently appears to be gaining momentum. The evidence? 

Following last night's dismal economic data, China's 10Y bond yield pushed above 4.00% for the first time since October 2014...

As China's intentional credit slowdown strikes.,,

Additionally, China's yield curve has been inverted for a record 22 days and analysts are warning it is likely to get worse - at least until Chinese authorities are forced to step back in.

Bloomberg provides a breakdown of analysts' comments:

Yellen warns "valuations are at the high end of ranges" but tax cut details diss stocks.

It was all going great until I hit 310kph...