“As it stands, the market is expecting the Fed to hike at three or four times in total this year. Also, the Trump Administration is showing no sign of backing down on trade wars,” Rabobank analysts point out.
Key quotes
“Unless there is a significant change in either of these factors, outflows from EM are likely to continue. This week White House Economic Advisor Kudlow warned Beijing not to under-estimate the President’s resolve in pushing for change in China’s economic policy. Already there are clear signs that growth in China is slowing.”
“Earlier this week, China reported that investment growth has slowed to a record low. Not only have Chinese stock indices been under pressure this year but three major Chinese companies listed in Hong-Kong (China Literature, Xiaomi and China Tower) have seen their stock prices fall below their recent IPO debut levels. Bejing is already taking action to combat slowing investment growth and has announced more infrastructure spending and incentives for the banking sector. Reuters has reported that new loans from China’s largely state backed banks surged by 75% y/y in July. In the first instance, news of more stimulus in China is supportive for risky assets. However, there are worrying undercurrents related to the steps taken by the Chinese authorities.”
“Specifically, concerns about debt bubbles have returned. This week, China’s National Development and Reform Commission has pledged to keep debt levels under control, but fears are rising in the market that a surge in credit fuelled growth could quickly undo the efforts made by the authorities to reduce risks in the financial sector.”
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