Separately, data from the People’s Bank of China showed credit and new loans were much worse than expected in April as consumers and businesses curbed their borrowing.

“China’s credit data came in well below estimates, reinforcing the concerns over the sustainability of post-Covid recovery,” said Zhou Hao, chief economist at Guotai Junan International Holdings Ltd. Overall growth momentum “has been slowing significantly,” he said. 

Expectations of policy easing has been growing, and a “policy rate cut looks imminent in the second quarter,” he added.

China’s economic growth accelerated to a one-year high in the first quarter after pandemic restrictions were dropped, led by stronger consumers spending on travel and shopping. Recent data has been more mixed though, with manufacturing activity contracting in April and imports plunging.

Eoin Treacy's view

China did not engage in the same pandemic spending as many western governments. That ensures inflation was kept under control. Instead they decided to use the pandemic as a means to curtail speculation in the housing sector which was the exact opposite of what happened in other countries. That has helped to keep government bond yields contained and the trend is still lower.

The jump in demand for luxury goods and travel is a direct result of consumers accumulating spending during the pandemic who now have an avenue for spending. However, China does not have the same swell of free cash that was present in the West.



Shares of companies like LVMH and Hermes are still close to their highs but are very overextended in the short term. The first downward dynamics will signal unwinding of overbought conditions and potentially that Chinese consumer demand is satiated.

Chinese bank stocks rebounded powerfully last week and have pulled back so far this week. The initial enthusiasm was based on the assumption the central government will be more forthcoming with stimulative measures to support the economy and give state owned enterprises a more central role.
ICBC surged and is now back testing a potential area of support, represented by the upper side of the underlying trading range. It will need to find support soon if the recovery is to be given the benefit of the doubt.

Copper’s downward dynamic this week breaks the yearlong uptrend and signals how much Chinese demand is undershooting. China’s recovery was always the weak point in the bullish argument for copper demand growth fuelling a new secular bull market. It represents more than half of global demand so what happens in China is going to be more significant for the price than any demand from renewables.