China'S Economic Data Have Not Yet Jumped Out Of The Strange Circle.

Market consensus attempts

Looking for signs of cyclical growth, iron ore, rebar and a strong rebound in property prices.

However, the consensus of the market is wrong to recognize the lag of these indicators as a predictor of growth, and these lagging indicators will peaked in the coming months.

Thread steel has entered the annual inventory cycle.

Due to the huge inventory, China's replenishment cycle is becoming shorter and shorter, and its driving force for growth is becoming more and more difficult to sustain.

In the short term, the fundamentals still have room for improvement before reaching the peak.

However, the technological rebound of the market has become increasingly weak and the risks are escalating.

Surprisingly, many of China's economic data can still be found in the shadow of the pig cycle.

Because farming depends on changing nature, agricultural societies tend to exhibit strong seasonality.

However, China has lifted hundreds of millions of its population out of the primitive agricultural labor and made these farmers devote themselves to the torrent of urbanization.

In 1959, in an important paper published in the Journal of agricultural economics, entitled "pig cycle and cobweb theory", Arthur Harlow (Arthur Harlow) discussed the obvious "pig cycle" in the US economy at that time.

With the establishment of the cobweb theorem, Harlow explained the role of future price expectations in the formation of cycles.

Over the 12 month period of farming and slaughtering cycles, prices are expected to create a 12 month lag between current prices and future supplies.

With this, a two-year pig cycle was born.

After 50 years of technological improvement, the pig cycle in the United States has been significantly shortened.

Our recent discussions with customers focused on China.

Has there been any reversal?

After all, the price of iron ore and thread has soared by 50%.

Even the price of cement, which is difficult to pport and store, has risen, especially in eastern China, while cement production has increased by 24%.

The real estate market has recovered.

Data show that sales area grew by 38% in March, and the new construction area was 27%. In the first quarter, the investment in real estate development increased by 6% over the same period last year.

The strength of these cyclical plates and commodity prices makes market consensus believe that China's growth cycle will return strongly.

However, we are not so sure.

At the same time, we are also working with many real estate developers.

The staff communicated.

Although real estate sales in the first quarter of this year were much more than expected and real estate went to stock in the support of policy, they still retained their outlook for the whole year of 2016.

What exactly do they see that is ignored by the consensus of the market? When we analyze shorter cycle economic data, we must distinguish between leading and lagging indicators.

The pig cycle based on the relative price changes of pork and piglets is a lagging indicator of monetary conditions.

The current surge in pork prices is only a reflection of lagging monetary easing.

Commodity prices, such as rebar and iron ore, are also true.