Chinese housing continues slide, but stabilisation elsewhere

The Chinese activity data were mostly in line with expectations in May, with much of the growth data on par with April.  There were some signs of looser policy making a difference, with funding for fixed investment picking up. Housing markets, however, remain weak.

At the moment, it looks like policy is working in containing the weakness in housing markets and supporting a small pick up in activity elsewhere. Its probably not enough to see aggregate growth pick up at this stage, but the downside risks do appear to have reduced a little.

This is assuming there is not a more generalised credit crunch, which is still the key risk.  To be sure, the US economy showed some signs of improvement in 1H08 right before it collapsed later in the year. So its best not to get too confident on the sign of a small improvement in activity given there are still significant structure problems.

Crude steel production was fairly close to expectations, rising ~2.6%YoY. This is a little slower than the CISA data, implying small mills are doing relatively poorly.

The level of steel production is still pretty good all things considered. Betting on it to continue though seems too risky at this stage.

Power generation edged up a bit in May, although is still a decent way below the 8.8%YoY growth in total industrial production.  If anything, it looks pretty stable over the last two months, as signalled by higher-frequency indicators.

Coal-burn lifted with the headline numbers, with a pull back in hydro generation also welcome news compared to the 20+%YoY growth seen in April.

Hydro generation will peak in the next few months and it currently looks like it will be stronger than last year, but below the peak seen in 2012.  That will weigh on the sluggish coal market, but might not be as big a disaster as it could be.