We expect that:

Economic reflation will continue in 3Q16. Economic activities will likely remain stable in September, extending the solid performance over July~August. We expect GDP growth in 3Q16 to be 6.7% YoY (prior: 6.7%). Prices rise moderately. And we expect nominal GDP growth in 3Q16 to be 8.3% YoY (prior: 7.3%). The pickup of nominal income growth is perhaps more important for the improvement of corporate cash flow and profitability.

September economic activities will show steady growth. The number of working days this September is the same as last. Some areas restricted industrial production during the G20 summit this September, while there was a victory day holiday and military parade last September. But the fact that the Mid-Autumn Festival was close to the National Day holidays last year might distort the activity data slightly. So far this month, YoY growth in coal consumption and steel capacity utilization accelerates; strong car sales may drive up production; and high-tech and equipment manufacturing industries are likely to maintain relatively fast growth. We expect industrial production growth in September to be flat at 6.3% YoY (prior: 6.3%). The stimulating effect of prior credit expansion on investment will gradually materialize. Accelerated launch of PPP projects will boost infrastructure investment at the margin. The mild softening of property sales will have limited impact on property investment this month. We expect fixed asset investment growth to be 7.1% YoY in September (prior: 8.1%) and 7.9% YoY over January~September (prior: 8.1%). Consumption is largely stable, and consumer prices rise. We expect retail sales growth in September to be 10.8% YoY (prior: 10.6%).

September export and import growth may drop. The YoY export and import growth data are volatile due to the base effect. Production limits during the G20 summit may have certain impact on foreign trade in the Zhejiang/Jiangsu areas. We expect export growth in September to be -4.6% YoY (prior: -2.8%) and import growth to be 1.1% YoY (prior: 1.5%). Trade surplus is then estimated at ~US$48.5bn (prior: US$52.05bn).

Price indices are likely to pick up in September. Pork and poultry prices fall while egg and vegetable prices rise significantly. Rising property prices may continue to keep rents up. Service, entertainment and health care prices may continue to be pushed up by higher costs. We expect CPI growth in September to be 1.6% YoY (prior: 1.3%). Prices of industrial products like coal, steel, iron ore, cement, glass and chemical products continue to rise, especially coal with administrative production limits. We expect PPI growth in September to be -0.2% YoY (prior: -0.8%).

Monetary policy remains accommodative in September. The PBoC speeds up liquidity injection, pumping Rmb1,031.9bn via open market operations as of September 23. However, FX outflows may accelerate, and the quarter-end Macro-Prudential Assessment and other seasonal factors may lift the liquidity demand. We expect M2 growth in September to be 12.4% YoY (prior: 11.4%). New household loans will remain high due to the lagged effect of strong property sales earlier. Local government bond issuance was Rmb647.5bn as of September 23, and local government debt swaps will dampen corporate loan growth. We expect new RMB loans in September to be ~Rmb1.1trn (prior: Rmb948.7bn). Net corporate bond financing remains robust and off-balance sheet financing may hold up. We expect total social financing in September to increase Rmb1.3trn (prior: Rmb1.47trn). That said, policy actions in the final week can have significant impact on the September financial data.

The decline in FX reserves may widen in September. As of September 23, the US dollar index fell 0.6%; the euro and the yen appreciated 0.6% and 2.4% respectively, while the pound weakened 1.3%. The exchange rate movements have resulted in ~US$1.72bn in positive valuation effect. Net FX outflows may increase on the uncertainties surrounding the Fed’s rate hike decision. The PBoC may also step up exchange rate stabilization efforts ahead of the RMB’s formal inclusion in the SDR basket. We expect FX reserves in September to shrink ~US$28bn (prior: -US$15.9bn).

Continued economic reflation, rising property prices and the exchange rate concern will limit the room for further monetary easing. We expect no interest rate cut in 2H16, but the PBoC will keep liquidity largely stable. Fiscal and quasi-fiscal policies have the ample capacity to support economic growth in 4Q16. And we believe a consistent and transparent macro policy setting will help anchor market expectations and boost economic activities.