Another day, another alarming piece of data delivered from China. Anyone looking for where the PBOC’s “surprise” RRR cut late last week is coming from, the Chinese car market provides yet another pretty stunning and consistent example. Together with other recent datapoints, as well as uniformly falling global bond yields, it’s more evidence for the growing very possibilities of a serious slowdown (perhaps more).

The China Association of Automobile Manufacturers (CAAM) said late last week that June 2021 auto sales in the country were 12.4% below those in June 2020. Not some one-month one-off, either, this makes the second straight month of negative annual comparisons (-3.1% y/y May 2021) even as sales levels in the same months of 2020 weren’t exactly huge.


That’s just the global chip shortage, or so it’s always claimed. Producers have been plagued by their inability to finish off full production runs, leaving dealers and wholesalers with dwindling inventories unable to fully satisfy otherwise healthy and robust demand. What else would this be?

Whenever dealing with the auto sector in any month of this year, whichever national economic series so long as it relates to vehicle sales or production any disappointment is immediately pegged on this one supply bottleneck. For one reason, there’s a lot of truth behind it.

But is semiconductor scarcity the only factor here? Not just for flagging Chinese car sales, either.

Over in Japan, for example, Industrial Production – which includes a healthy dose of automobile manufacturing – had been on a decent run in 2021 despite the chip issue. Then in May, another massive decline in activity across all sectors. The monthly, seasonally-adjusted drop was a nasty 5.9% when compared to April.


But that was just COVID, right? The Japanese have been dealing with regional eruptions in renewed case counts from beginning in May, with officials warning about this “fourth wave” becoming more serious over the weeks that followed (as it eventually led to canceling spectatorship for the upcoming Olympic Games in Tokyo).

Then how about Mexico? Already, the semiconductor shortage is blamed for Industrial Production seriously lagging a full recovery; in the latest monthly estimates, released earlier today, overall IP gained only 0.1% in May after having declined a revised 0.3% in April.

Mexican IP is still about 2.5% less than it had been in February 2020 and, far more important, remains an astonishing 6.7% below the last peak reached all the way back in May 2018. This isn’t really about semiconductors nor just the automobile industry.


You can see by constituent components, manufacturing, mining, and construction, that Mexico’s IP is being held back by all three sectors (commodity supercycle?) In fact, the manufacturing index has performed best of the trio.

While there are idiosyncratic factors causing local differences in local industries, it is still the case the global economy is and remains pretty much synchronized. Not just China car sales or Japan and Mexico IP, also, as noted last week, German production as well as IP in the United States. Quite uniformly, global industry is being plagued by more than singular disruptions in limited sets.

Yes, there is a chip shortage but that can’t explain why all these are together still stuck at significantly less than production capacities or just in comparison to pre-COVID (let alone 2018 peak) output. The Globally Synchronized Corona Recovery is a bit too harmonized in the wrong way.


Industry, as has been consistently the way since 2007, has been a very good leading indication during each Euro$ cycle for what followed in the entire rest of the system and which direction it will (inevitably, eventually) take.

This – not supply factors and renewed pandemic panic – is why global bond yields have been behaving the way they have over the past few months; more so in more recent weeks. There’s a growing feeling/realization that even in its best days (of US goods frenzy) the entire global system didn’t really come back nearly enough.

Why didn’t it?

Unfortunately, the very possibility is simply excluded from mainstream “analysis” because it doesn’t fit (at all) with the common inflation/stimulus narrative (one that often focuses on individual nationalities as isolated cases). Every bit of weakness, every drop in bond yields, each has to be assigned (like 2018 or 2014) some benign-sounding explanation or better (like the economy is too good!) We’ve heard any number of them over the years: semiconductor shortage; labor shortage; trade wars; R*; overseas turmoil; bond yields = QE; etc.

Inflationary potential was never high to begin with – at any point this year despite the “historic” selloff. Even as US consumer prices have jumped, those around the rest of the global economy have yet to come close to them. That was already a warning about the real underlying state of the whole system.



It’s boring, it’s tired, and done to death this same problem for so many years. Whether Economists or media commentators can imagine it or not, what we are seeing again is just very simple economic weakness. Nothing more exotic than that. The very same that’s been the baseline ever since August 2007. In the aftermath of COVID, unfortunately, that baseline may have just been adjusted – in the wrong direction.

That’s not just falling bond yields, it is also interest rates dropping from already-obscenely low levels.

There’s a consistent picture emerging from markets as well as a broad range of economic data. It’s not COVID, and it’s not chip shortage. Those are happening, but it really would’ve been great if they actually did explain much or anything.