China: A good start to the year - Standard Chartered

Analysts at Standard Chartered note that China's latest available data indicates improved growth in Q4-2019, and their model suggests 6.0% YoY growth in October-November, flat versus Q3-2019.

• "December indicators, including the official and Caixin PMIs and our SME index (SMEI), point to better sentiment and continued expansion in activity toward the end of 2019. Q4 growth may have edged up to 6.1% y/y, resulting in annual growth of 6.2%.
• Monetary policy is becoming more supportive of fiscal expansion. The 50bps reserve requirement ratio (RRR) cut, effective on 6 January, will unlock over CNY 800bn of long-term liquidity and reduce banks' funding costs by about CNY 15bn annually, according to the People's Bank of China (PBoC).
• Injecting adequate liquidity is critical to containing the government's debt cost and preventing a crowding out of the private sector. To lower SMEs' financing costs by 50bps in 2020 (as required by the State Council), we see another two RRR cuts this year of 50bps each in Q2 and Q3, in addition to a total 20bps cut in the medium-term lending (MLF) rate in H1.
• The January RRR cut paves the way for a 5bps reduction in the 1-year and 5-year loan prime rate (LPR) - the new references for pricing loans - on 20 January. The next MLF rate cut (5bps) may, therefore, come in February, with pass-through to the LPR."