Data from China on Friday on financing. New loans slumped, even as money supply (M2 +11%) grew strongly - i.e. plenty of cash sloshing about but its not in demand:
The chief China economist at Pantheon Macroeconomics says such a combination of data is a “classic sign of a liquidity trap” .
- “Liquidity is ample, but no one wants it.”
The remarks come via a Bloomberg piece (gated, but an ungated one can be found here):
- The mismatch between liquidity and bank lending is also raising financial risks as market interest rates drop well below policy rates set by the central bank.
- “Liquidity is piling up in the interbank market and there’s even a risk of money being directed out of the real economy and into markets,” said Ming Ming, chief economist at Citic Securities Co.
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Risk of money being directed into markets could very well translate to a bullish input for Chinese stocks.
ps. Coming up on Monday is a maturing MLF. A majority of analysts expect the PBOC to not fully roll the amount maturing (that is, a net withdrawal of cash). On the 20th we get the monthly loan prime rate setting from the PBOC (preview here).
