Cyclical vs secular slowdown

China reported Q2 GDP growth of 7.6%, essentially in line with expectations of 7.7% but it is the slowest growth since Q1 ’09. Retail sales for June grew 13.7% y/o/y, slightly above estimates but IP rose a touch less than forecasted. Net-net, nothing in the data brings new incremental slowdown fears but at the same time further confirms the moderation. The Shanghai index was little changed in response but copper is rising to a one week high on hopes for more easy money. Singapore said its economy in Q2 unexpectedly contracted q/o/q. While there is obvious and needed focus on Chinese growth, we must differentiate between a cyclical economic slowdown in China and most of Asia from the secular, over indebted induced slowdown in Europe, the US and Japan. Italy sold 4 debt issues with maturities ranging from 3 yrs to 21 at the target amount after Moody’s downgraded its credit rating by 2 notches putting them 1 notch below S&P and 2 below Fitch. The Italian 10 yr yield rose above 6% earlier but is now back below.

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