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12 Jun 2013
Flash: China in trouble? – Deutsche Bank
FXstreet.com (New York) - According to Macro Strategy Analysts J. Reid and C. Tan at Deutsche Bank, “China (along with some other EM countries) has some serious issues in the upcoming quarters.”
More specifically, the overcapacity in Chinese industry is a big problem and is associated with a large a misallocation of resources (not helped by heavy state involvement) that's going to be a challenge to correct. “Linked into this we thinks that China will be exporting dis-inflation for the foreseeable future. We have a feeling that bonds globally are very close to the top of their yield range and that lower activity/inflation in the short-term will help them out.” they add.
In addition, the recent bout of EM weakness will force the Fed to be very careful about tapering and in the end force them to prolong QE beyond the point they'd ideally like and beyond market expectations. The Fed has assumed responsibilities beyond the US economy over recent years and they will surely have to consider the impact their actions will have on the global economy and asset prices. It's not just about the US economy in our opinion.
More specifically, the overcapacity in Chinese industry is a big problem and is associated with a large a misallocation of resources (not helped by heavy state involvement) that's going to be a challenge to correct. “Linked into this we thinks that China will be exporting dis-inflation for the foreseeable future. We have a feeling that bonds globally are very close to the top of their yield range and that lower activity/inflation in the short-term will help them out.” they add.
In addition, the recent bout of EM weakness will force the Fed to be very careful about tapering and in the end force them to prolong QE beyond the point they'd ideally like and beyond market expectations. The Fed has assumed responsibilities beyond the US economy over recent years and they will surely have to consider the impact their actions will have on the global economy and asset prices. It's not just about the US economy in our opinion.