Is China to reaccelerate?
Yesterday the official China Manufacturing PMI for December rose above 50.3 from 49.0 in November which is a sign that China likely accelerated in December (see chart below). It is clear that China has slowed down continuously since late 2010 as the developed economies have slowed down. With inflation likely slowing down globally, indicated by probably the best indicator FAO Food Price Index which is down 9.6 percent since February 2011, we believe China will begin to move the needle on monetary stimulus. We saw the initial steps not long ago when the People’s Bank of China lowered the reserve ratio requirements for large commercial banks. In our view the central bank will continue to ease monetary policy to stimulate its economy that is definitely suffering a hangover from the building boom.
As China moves the needle on monetary policy this will have an effect on the global economy but the impact will presumably lag by up to six months so investors might see asset markets strengthening in the second half of the year.
European stocks are off to a good start
The Euro STOXX 50 Index is up 0.4 percent on the first morning of trading in the new year driven by heavyweights SAP (+1.0%) and Siemens (+0.5%). News impacting markets will be light today as investors are waiting for the huge package of economic data tomorrow with German unemployment figures, UK PMI manufacturing, US construction spending and US ISM Manufacturing, with the latter as the most important release.
Peter Garnry
SAXO BANK