Concerns over China’s slowing economy that sent global stock and commodity markets on a recent free fall are heightened by the opacity and conflicting signals from the country’s political leadership and its central bank.
Anatole Pang, sector lead for financial and professional services at the China-Britain Business Council (CBBC), said in a statement that despite all the turbulence, gloom and speculation, “we are learning very little new about the China story from what we knew before”. Yesterday the Treasury offered $26 billion of two year notes, which drew the weakest demand since October.
Traders will be looking for further clues on the timing of rate hikes when central bank bosses – including Bank of England governor Mark Carney – gather from today for the annual economic policy symposium in Jackson Hole, Wyoming.
China’s yuan declined to a two-week low and interest-rate swaps fell the most since June after the central bank lowered borrowing costs in a surprise move.
But the global Monetary Fund said the renminbi’s devaluation was a “welcome step”.
Other world markets surged on the news out of Beijing, and for a while, it appeared that U.S. stocks would follow suit and that the global sell-off might stop. Interest rates are still zero in most developed markets. As in India some years ago, apartment prices exploded. We might see a few more episodes of the market being spooked.
The Communist Party succeeded at cooling a debt-fueled boom in construction and real estate. This rate was cut by nearly 2% in early August of this year in a supposed attempt to help exports by reducing the price of Chinese goods overseas. Because we are now better farers of choppy waters than the landlubbers of yore.
Chinese officials promoted stocks, ushering people from an overheating property market at the time. This would turn out to be a major miscalculation. The Chinese authorities have become less nervous about a slowing economy by accepting and promoting the trend as a “new normal”. There seems to have been a breakdown in communication between China and the rest of the world, as the Chinese government failed to clearly express how it plans to manage their economy in the future, with its lack of clear strategy spooking investors.
When it comes to warning indicators from China, there are many from which to choose. The ratio for large banks after the move will be 18%.
Many economists suspect that the official figures are too optimistic. Among the government interventions were lending state entities money to buy stocks and restricting shareholders from selling large positions. There isn’t much, if any, overlap between Chinese and worldwide investors on stock markets.
“Once you encourage an equity bubble, it will collapse – and then you are really in trouble”, Edwards said. It is now the one causing the shocks.
“It just rippled across the whole region”, he recalled.
Fed policymakers acknowledge their actions can stir global markets, but argue they need to stay focused on growth at home.
For Jeffrey Sherman, a portfolio manager at the bond investment firm DoubleLine, the big cautionary sign was the correction in the high-yield corporate bond market. The US and European economies brushed it off in the end. Exports dropped sharply in July. The Aussie share market has its own problems to contend with.
Alan Bush has been a commodity analyst since 1976 focusing on the fundamental and technical aspects of stock index, interest rate and foreign currency markets.
“Expecting China to continue to be the engine of global GDP growth, at least in 2015, is more than wishful thinking”.