Morning Commentary: China Warnings to the Global Economy

A daily summary and commentary of events and factors that affect the global markets, with a particular emphasis on the foreign exchange markets.

China Warnings to the Global Economy Share this story: David Atkinson Foreign Exchange Sales Manager

The story that caught my eye this morning was repeated in a few commentaries — Guo Shuqing, chairman of China’s Banking and Insurance Regulatory Commission, says he is “very worried” about the risks building in global financial markets, as well as China’s own property sector. The first step is to reduce high leverage in the financial system, which frankly makes sense, but I am not holding my breath on this side of the Pacific. No doubt this is part of the stage setting that comes ahead of every National People’s Congress meeting, which is coming up on March 5. We are hearing similar warnings from the People’s Bank of China about pulling back on loose credit conditions. It seems like China is living in an alternative economic universe regarding central bank policy.  Deutsche Bank U.S. Chief Economist Matthew Luzzetti on Bloomberg this morning discussed his bank’s view that the U.S. will be seeing growth of 7%–8% on the back side of this year and going forward. His optimism is reflected in forecasts by Morgan Stanley U.S. Chief Economist Ellen Zentner. The Atlanta Federal Reserve Bank has a model that estimates current GDP. That “GDPNow” estimate was updated yesterday to be slightly over 10%. In such an environment, you would be forgiven for wondering how the same economic environment has markets ulling in pricing for a Fed rate hike to the first half of 2023 rather than the last half of 2023.  On the other side of the Atlantic, European Central Bank Executive Board member Fabio Panetta made headlines when he said that rising long-term government bond yields are “unwelcome and must be resisted.” Like policymakers in Japan and Australia, this adds to the list of central bankers around the world who are not following the lead of the U.S. Fed, which is letting rates rise due to the interpretation that rate rises are due to a strong economy and not due to inflationary pressures.  Canada reported a 9.6% increase in GDP for the fourth quarter of 2020. These numbers look strong, but remember all the craziness of 2020. Canada’s second quarter of 2020 saw a 38.5% plunge in GDP followed by a 40.6% bounce in the third quarter. The fourth-quarter number did include some inventory buildup and disappointing household consumption data. Nevertheless, Canada is looking to join the post-COVID-19 global beer keg party being planned by the markets for sometime this summer. Market indicators are fairly muted this morning, with currencies range trading and modest strength in global equities.

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