Eoin Treacy's view -
While developed world central bankers claim and deserve some credit for saving the world from a depression in 2009, their colleagues in the emerging markets may also have been key players in staying disaster. As OECD broad money growth actually contracted in late 2009, China saw broad money growth around 30% and India around 20%.
Could this have been a key factor in preventing a debt deflation? If so, we need to be concerned that as broad money growth in the OECD slows rapidly the growth of broad money in India and China has reached new lows.
In China M2 growth year on year, at 8.9%, is the lowest level of growth recorded since records began. That is a marked slowing from the growth rate of above 11% when the world thought Chinese growth was collapsing in 1Q 2016. That tightening in monetary policy occurs as three-month interest rates in China have risen from a low of 2.7% in 2016 to 4.7% today.
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China is attempting to clamp down on property market speculation as prices continue to climb. That could well be behind the slow pace of money growth. However, it is also worth considering that the cuts to reserve requirements on its banks announced Wednesday were designed to act as some incentive to increase money supply
The Hong Kong Financials Index, which is comprised primarily of mainland banks and insurance companies, continues to outperform the China Enterprises (H-Share) Index. The 4000 level has acted as an area of psychological resistance since 2008 and it rallied above it on Wednesday. A break in the progression of higher reaction lows would be required to question medium-term scope for additional upside.
The Shanghai Property Index pulled back sharply before the mainland market closed for the Mid-Autumn festival and is now testing the region of the trend mean and the progression of higher reaction lows. It will need to bounce soon if potential for higher to lateral ranging is to be given the benefit of the doubt.
Russell Napier’s contention that risk is growing in the financial sector is far from a lone voice in the wilderness and there is some weight to the argument however if we assess the consistency of trends across global markets there is scant evidence of top formation development, at least right now.
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