Global credit impulse goes negative

Updated on

ore Investors are watching US data more closely and anything related to china has been relegated to inside pages . Even Yuan volatility is too low to warrant a headline. but by focusing so intensely on U.S. political developments, investors risk missing a silent shift in what has arguably been the strongest driver of global reflation in the last five years and more specifically from US presidential election till march of this year……“Chinese credit”. This driver is now moving sharply in reverse.



The relevance of the Chinese credit impulse to global reflation cannot be overstated . China’s massive credit stimulus starting in 2014 initially put a floor under commodity prices and emerging market (EM) growth. Then, the unexpected acceleration in Chinese real estate investment drove both commodity prices and volume demand higher. EM growth subsequently bounced, and with it, global trade volumes. The key driver of realized global reflation, then, has been China – not the promise of fiscal stimulus and deregulation that has helped boost confidence and other soft data in the U.S.

As Victor shvets writes…..Reflation has already peaked; EM O/performance to weaken 

” We maintain that reflationary wave had already peaked in Mar’17, and should weaken through the balance of the year. While China remains the greatest danger, it is also the world’s ‘guardian angel’, with capacity for further stimulus. However, in the absence of much deeper dislocation, we expect China to prioritise stability. As disinflation strengthens, we believe that EMs relative performance will weaken”

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