China's growth: Behind the numbers

China's growth: Behind the numbers

China’s growth figures were unexciting, but the trade picture may be improving; U.S. consumers spent well in November; Mario Draghi stuck to the ECB’s plan, but didn’t sound cheerful about it.

“This is a good signal that China and the United States are on track to solve the trade war”
Wang Cun, director of import committee of the China Automobile Dealers Association

China’s growth: Behind the numbers

Observers probing for weakness in China’s most recent government figures found relatively little to feed their worries. November retail sales grew 8.1% year-on-year; industrial production rose 5.4% year-on-year; fixed assets grew 5.9%, while property investment rose 9.7% year-on-year, the same blistering pace as in October. It’s true that retail sales showed the slowest growth in 15 years and factory output growth was at a 3-year low, but the figures still reflect a Chinese economy on a general path of continued growth.

All this is perhaps surprising given ongoing trade disputes with the U.S. – which are themselves showing signs of tentative, if symbolic, easing since the December meeting between U.S. and China Presidents Xi and Trump. On Thursday, December 13, China placed an order for 1.1 million metric tons of U.S. soybeans, the first purchase since July, when China started to buy soybeans from Brazil instead. Shipping terminals in the Pacific Northwest began accepting soybeans for the first time in months. Also on Thursday, China officially announced its widely-expected temporary suspension of the punitive tariffs it had imposed on U.S.-made cars and auto parts.

U.S. Consumers: Still shopping

Preliminary headline figures show November retail sales growing at a leisurely 0.2% since October.  But when adjusted for declining energy and auto prices, the pace was a more robust 0.5%.  Even better, the so-called “control group” figure which is used to compute U.S. GDP rose 0.9%, well above the expected 0.4% rate and the fastest pace since last year’s November figures. The savings at the fuel pump appeared to be spent on big-ticket items such as furniture and electronics. Some observers concluded that retail sales growth in the face of the relatively low 0.2% month-on-month core consumer inflation figure indicate continued rapid economic growth; the Fed’s economic outlook for 2019, due to be released on December 19, will be scrutinized closely to see if the FOMC shares that opinion.

ECB: Sticking to the plan

European Central Bank (ECB) President Mario Draghi attempted to square the circle during the press conference following the ECB’s monthly policy meeting, lowering the Bank’s economic forecast while adhering to the widely-publicized plan to end the bond-buying portion of its historic €2.6 trillion ($3 trillion) four-year economic stimulus program. The full-year forecast for 2018 was lowered by 0.1 percentage point to 1.9%, as was the forecast for 2019, which now stands at 1.7%. The tone of Mr. Draghi’s comments was dovish to the point of pessimism, describing the state of the economy as “a climate of great uncertainty”. Which also explains his taking great pains to assure listeners that the ECB would continue to hold its €6.2 trillion inventory of bonds for “an extended period of time” after its first interest rate hike, currently anticipated, with ECB guidance, to take place in late 2019.


All data Source: Bloomberg, December 14, 2018, unless otherwise noted.


Important Information


All investments involve risk, including possible loss of principal.

The value of investments and the income from them can go down as well as up and investors may not get back the amounts originally invested, and can be affected by changes in interest rates, in exchange rates, general market conditions, political, social and economic developments and other variable factors. Investment involves risks including but not limited to, possible delays in payments and loss of income or capital. Neither Legg Mason nor any of its affiliates guarantees any rate of return or the return of capital invested. 

Equity securities are subject to price fluctuation and possible loss of principal. Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls.

International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.

Commodities and currencies contain heightened risk that include market, political, regulatory, and natural conditions and may not be suitable for all investors.

Past performance is no guarantee of future results.  Please note that an investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.

The opinions and views expressed herein are not intended to be relied upon as a prediction or forecast of actual future events or performance, guarantee of future results, recommendations or advice.  Statements made in this material are not intended as buy or sell recommendations of any securities. Forward-looking statements are subject to uncertainties that could cause actual developments and results to differ materially from the expectations expressed. This information has been prepared from sources believed reliable but the accuracy and completeness of the information cannot be guaranteed. Information and opinions expressed by either Legg Mason or its affiliates are current as at the date indicated, are subject to change without notice, and do not take into account the particular investment objectives, financial situation or needs of individual investors.

The information in this material is confidential and proprietary and may not be used other than by the intended user. Neither Legg Mason or its affiliates or any of their officer or employee of Legg Mason accepts any liability whatsoever for any loss arising from any use of this material or its contents. This material may not be reproduced, distributed or published without prior written permission from Legg Mason. Distribution of this material may be restricted in certain jurisdictions. Any persons coming into possession of this material should seek advice for details of, and observe such restrictions (if any).

This material may have been prepared by an advisor or entity affiliated with an entity mentioned below through common control and ownership by Legg Mason, Inc.  Unless otherwise noted the “$” (dollar sign) represents U.S. Dollars.

This material is approved for distribution in those countries and to those recipients listed below. Note: this material may not be available in all regions listed.

All investors and eligible counterparties in Europe, the UK, Switzerland:

In Europe (excluding UK and Switzerland), this financial promotion is issued by Legg Mason Investments (Ireland) Limited, registered office 6th Floor, Building Three, Number One Ballsbridge, 126 Pembroke Road, Ballsbridge, Dublin 4, D04 EP27. Registered in Ireland, Company No. 271887. Authorised and regulated by the Central Bank of Ireland.

All Qualified Investors in Switzerland:
In Switzerland, this financial promotion is issued by Legg Mason Investments (Switzerland) GmbH, authorised by the Swiss Financial Market Supervisory Authority FINMA.  Investors in Switzerland: The representative in Switzerland is FIRST INDEPENDENT FUND SERVICES LTD., Klausstrasse 33, 8008 Zurich, Switzerland and the paying agent in Switzerland is NPB Neue Privat Bank AG, Limmatquai 1, 8024 Zurich, Switzerland. Copies of the Articles of Association, the Prospectus, the Key Investor Information documents and the annual and semi-annual reports of the Company may be obtained free of charge from the representative in Switzerland.

All investors in the UK:
In the UK this financial promotion is issued by Legg Mason Investments (Europe) Limited, registered office 201 Bishopsgate, London EC2M 3AB. Registered in England and Wales, Company No. 1732037. Authorized and regulated by the Financial Conduct Authority. Client Services +44 (0)207 070 7444

All Investors in Hong Kong and Singapore:

This material is provided by Legg Mason Asset Management Hong Kong Limited in Hong Kong and Legg Mason Asset Management Singapore Pte. Limited (Registration Number (UEN): 200007942R) in Singapore.

This material has not been reviewed by any regulatory authority in Hong Kong or Singapore.

All Investors in the People’s Republic of China ("PRC"):

This material is provided by Legg Mason Asset Management Hong Kong Limited to intended recipients in the PRC.  The content of this document is only for Press or the PRC investors investing in the QDII Product offered by PRC’s commercial bank in accordance with the regulation of China Banking Regulatory Commission.  Investors should read the offering document prior to any subscription.  Please seek advice from PRC’s commercial banks and/or other professional advisors, if necessary. Please note that Legg Mason and its affiliates are the Managers of the offshore funds invested by QDII Products only.  Legg Mason and its affiliates are not authorized by any regulatory authority to conduct business or investment activities in China.

This material has not been reviewed by any regulatory authority in the PRC.

Distributors and existing investors in Korea and Distributors in Taiwan:

This material is provided by Legg Mason Asset Management Hong Kong Limited to eligible recipients in Korea and by Legg Mason Investments (Taiwan) Limited (Registration Number: (98) Jin Guan Tou Gu Xin Zi Di 001; Address: Suite E, 55F, Taipei 101 Tower, 7, Xin Yi Road, Section 5, Taipei 110, Taiwan, R.O.C.; Tel: (886) 2-8722 1666) in Taiwan. Legg Mason Investments (Taiwan) Limited operates and manages its business independently.

This material has not been reviewed by any regulatory authority in Korea or Taiwan.

All Investors in the Americas:

This material is provided by Legg Mason Investor Services LLC, a U.S. registered Broker-Dealer, which includes Legg Mason Americas International. Legg Mason Investor Services, LLC, Member FINRA/SIPC, and all entities mentioned are subsidiaries of Legg Mason, Inc.

All Investors in Australia and New Zealand:

This document is issued by Legg Mason Asset Management Australia Limited (ABN 76 004 835 839, AFSL 204827).  The information in this document is of a general nature only and is not intended to be, and is not, a complete or definitive statement of matters described in it. It has not been prepared to take into account the investment objectives, financial objectives or particular needs of any particular person.

Forecasts are inherently limited and should not be relied upon as indicators of actual or future performance.

Commodities and currencies contain heightened risk that include market, political, regulatory, and natural conditions and may not be suitable for all investors.