We expect industrial production (IP) growth to pick up to 6.3% YoY in August from 6% YoY in July. On the sequential basis, August IP remained largely stable from July, with the advantage of 2 extra working days in August being offset by the production cut in Yangtze River Delta area amidst the G20 meeting in Hangzhou towards late-August. Setting aside the event-driven and working-day-related distortions, we expect the underlying momentum of IP to remain largely stable in 3Q, with electricity and automobile production growth outperforming, and output growth of the overcapacity industries being curbed by the government’s effort to constraint the capacity utilization.

Headline Fixed Asset Investment growth will likely remain weak at around 5% YoY in August, compared with 3.9% YoY in July. Our forecast of 5% YoY growth for August FAI implies year-to-date FAI growth of around 7.6% YoY. It has become increasingly difficult to pin-point the reported monthly FAI data, as it is plagued with data quality issues. It appears that the need to "adjust down" the level of monthly FAI might have affected the reported headline in recent months. We would put more emphasis on the growth of monthly FAI project new start and real estate investment néw start for a better gauge on the forward-looking cyclical momentum. Sector wise, we expect infrastructure investment growth to remain robust, real estate investment growth to pick up moderately, and manufacturing investment to stay weak.

August retail sales growth may edge down to 9.8 % YoY from 10.2% YoY in July. Our forecast of slower headline retail sales growth in August is driven by 2 factors: 1) there are 2 less weekend-days in this August vs. 2015, which puts consumption growth at disadvantage, and 2) YoY consumer price inflation may soften in August due to the high base effect.

August headline export growth may weaken moderately to -9% yoy and headline import growth may strengthen to -9.4% yoy, from -6.4% yoy and -12.9 yoy in July, respectively. The volatility in headline trade value growth was largely driven by the choppy base, while the underlying trend may be a moderate weakening of export growth and weak but stable import demand, with import price reflation boosting the import value growth. On the other hand, the trade surplus is likely to stay high at USD 55bn, similar to the level in July. Global demand leading indicators and export order index in China PMI both indicate potential weakness in export growth going forward.

We expect CPI inflation to decline to 1.5% in August from 1.8% in July, and PPI inflation to jump to -0.9% from -1.7% in July. Our forecast assumes an underlying sequential growth of CPI at 0.2% MoM, with sequential food CPI largely flat and non-food CPI gaining 0.3% MoM following the sequential growth at the same rate in July. We expect non-food CPI inflation to stay at a relatively higher rate compared with 1H2016, as service sector inflation tends to be "stickier" then food price inflation. On the other hand, PPI deflation may narrow materially to a "0" handle in July, helped by a notably lower base in August 2015 and continued sequential advancement of domestic raw material prices for coal, steel, cement, chemical products, and etc.

New RMB loans will likely amount to ~RMB 600 bn in August, new total social financing (TSF) is also expected to come in at around RMB 600bn,  while M2 growth may pick up to 10.8% YoY from 10.2% YoY in July.  Month-to-date PBOC net injection in August sum up to RMB 243 bn as of last Friday, indicating M2 expansion by a little above trillion (barring significant swings in Fx assets and fiscal deposits). Sequential M2 growth may stay relatively stable, while higher YoY M2 growth in August may be largely driven by lower base compared with July. In the first 26 days of August, net issuance of local government bonds amounted to RMB 606 bn, of which RMB 480 bn were swap bonds. Therefore, RMB new loans is expected to come in at around RMB 600 bn assuming the same run-rate in the last few days in August for base money growth and bond swap. Given the large amount of local government bond swap and the upbeat property transaction growth, August new loans may continue to be driven by mortgage loan issuance. Meanwhile, we expect total new TSF to also amount to around RMB 600 trillion in August, with the net increase of corporate bond and equity financing being largely offset by the continued decline of outstanding bank's acceptance bills. The adjusted TSF growth may moderate further to 16.1% YoY in August from 16.4% YoY in July and its recent peak of 17.2% YoY in April 2016, indicating limited incremental loosening of monetary policy.

FX reserves may decline by USD 11 bn to USD 3.19 trillion in August. Our calculation has factored in a positive valuation effect of moderate USD weakness month-to-date, continued capital outflow, as well as the estimated USD 55 bn of trade surplus in August.

Stable activity growth and continued reflation may limit the scope of further monetary loosening. We expect headline CPI inflation to pick up notably after September as the high base effect for food price wears off and service prices continue to rise. PPI may reach >1% YoY by end 2016 considering the falling base and continued efforts in curbing the capacity expansion of heavy industrial products. Meanwhile, profitability may continue to recover on YoY basis for non-financial enterprise towards the year end. On the other hand, property price inflation may keep spreading rapidly to lower-tier cities. The inflation trajectory limits the scope for monetary loosening, especially considering the recent efforts of regulators towards financial market deleveraging.