17.06.25 - China vs. US consumer
China: as released yesterday, retail sales surged by 6.4% YoY in May, well ahead of the expected 5% and accelerating from April’s 5.1%. It marked the fastest pace since late 2023, supported by government subsidies aiming to stimulate domestic demand. However, industrial output growth slowed to 5.8%, slightly below expectations and down from 6.1% in April, reflecting the strain of lingering trade uncertainties and deflationary pressures.
US: In contrast, US retail sales declined 0.9% MoM in May, far worse than the -0.6% consensus and following a -0.1% drop in April. Excluding autos, sales still fell 0.3%. Weakness was broad-based: autos -3.5%, gas stations -2%, restaurants -0.9%. Only online (+0.9%) and furniture stores (+1.2%) showed some resilience.
Markets: US Futures down, China stock indices down after yesterday’s small bounce; US dollar and interest rates little changed; gold slightly positive while major cryptos fall.
My view: Recent consumer data underscores a widening gap between China and the US in consumption dynamics.
For now, China's consumer is rebounding, helped by targeted policy support and still-depressed comparison bases. However, the economic environment remains challenging to maintain stable growth since the second quarter, naming heightened uncertainty in trade policies among factors dragging growth.
Meanwhile, the US consumer is turning more selective, if not outright cautious. After front-loading purchases in March, particularly autos, ahead of anticipated tariffs, May data confirms a pullback. Airlines inform that they are facing weaker travel demand. Tariff concerns, rising energy prices, and cautious consumer sentiment clearly weighed on spending. With inflation-adjusted wages barely moving and geopolitical tensions rising, households are rethinking their priorities.
With the overall situation (high valuations after recent rally) and the escalation in the Middle East area to continue, I remain selective and rather cautious. Expecting some drawdown and higher volatility ahead, I took measures in recent weeks benefitting from falling stock indices and rising volatility.
However, I keep my allocation in China internet and consumer stocks.
In case of positive signs, I will add more exposure in China and buy some global retail stocks which saw lately sharp declines.
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