What do the latest economic numbers from China reveal?

Executive summary:

  • Home-price declines accelerated in China during May, falling by 4.3% on a year-over-year basis
  • UK headline inflation dipped to 2%, matching the Bank of England's target
  • U.S. retail spending slowed during May

On the latest edition of Market Week in Review, Director and Senior Investment Strategist Alex Cousley discussed recently released economic data from China, including home prices and credit numbers. He also covered the Bank of England’s (BoE) recent rate decision and provided an update on U.S. retail spending during May.

China’s housing market slump continues


Cousley began with a look at the latest numbers pertaining to China’s housing market, which he said came in on the soft side again. For instance, new homes in China saw an acceleration in price declines during May, Cousley explained, with prices falling 4.3% on a year-over-year basis—compared to a 3.5% decrease during April. Prices for second-hand or previously owned homes also fell, he noted, slumping 7.5% last month.


“While the transaction volume in the secondary market was distorted by the recent Dragon Boat Festival, data from a number of other sources also demonstrated that Chinese home prices are still softening,” Cousley remarked. Transaction volumes remain a crucial watchpoint for China, he stressed, saying he’ll be closely monitoring trends in the secondary market to assess the magnitude of the expected bounce-back from the recent holiday.


Turning to retail sales, Cousley said they were a bit better than expected, but still came in at low levels. Meanwhile, fixed asset investment slightly missed expectations, growing 4% on a year-over-year basis, he observed. “There were some distortions in this data due to bad weather, and I expect to see an increase soon in light of more government bond issuance,” Cousley stated.


He said that during May, China’s credit numbers were held up by the increase in government bond sales, but noted that general demand for credit outside of government bonds was again fairly tepid. “This sparked headlines about the need for the People’s Bank of China (PBOC) to take more action. The Securities Times—the country’s state-owned newspaper—highlighted that potential policy cuts are somewhat constrained by FX (foreign exchange) stability and falling net interest margins. It’s possible that the PBOC may choose to wait for the U.S. to lower interest rates first before doing the same,” he explained.

Dovish BoE holds borrowing costs steady but signals potential August cut

Next, Cousley shifted his focus to the UK, noting the BoE left its benchmark rate unchanged at the conclusion of its June meeting. The decision was widely expected, he said, adding that the messaging from the central bank was rather dovish, with markets now expecting a potential rate cut in August.

Bolstering the likelihood of an August cut was the UK inflation report for May, which showed that headline inflation dropped to the bank’s target level of 2%, Cousley explained. However, the report also indicated that inflation in the services sector—a key focus of the BoE—is still quite elevated, he noted. “Overall, the May numbers kept the BoE in a dovish stance, but the data wasn’t enough to justify lowering rates yet,” Cousley remarked.

U.S. retail spending slows

Cousley wrapped up the segment by assessing U.S. retail sales during the month of May, which he said came in slightly softer than consensus expectations. “The report demonstrated that consumer spending is cooling a bit, which is to be expected as jobless claims gradually rise and the U.S. labor market softens more,” he said. Cousley stressed, however, that unemployment claims are still trending below the estimated breakeven rate—meaning the number of claims isn’t enough to cause a rise in the country’s unemployment rate.

He concluded by noting that Nvidia—the artificial-intelligence (AI) company that has helped the Magnificent Seven group of stocks dominate equity-market returns over the past year—became the most valuable public company by market capitalization on June 18. “Nvidia now has a market cap of approximately $3.33 trillion, slightly more than Microsoft’s market cap of $3.32 trillion,” Cousley stated, adding that the AI chipmaker’s rise in value the past 12 months has come at a meteoric pace.