China GDP data for the third quarter was due for release today but has been delayed.
My forecast is for a further decline of 1.2%. This would mean China had joined the US in a technical recession.
President Biden and US Fed Chairman Powell keep talking about a strong economy as if they cannot read GDP data. It may be the case that China has now delayed the release of their GDP data, which may confirm a recession there too, until after Congress is over.
This would seem to make sense from an image management perspective to be sure.
Whenever the release occurs, we should all be prepared for some global financial market reaction if the world’s two largest economies are both in recession this year. Especially, as the global economic slowdown remains ongoing.
Yesterday, we saw the release of the US New York Empire State Manufacturing Index which registered a contraction for the third month in a row. The US economy is not strong and there have been no policy reactions that would be appropriate to counter this economic slow-down.
Instead, we have a ‘head in the clouds’ White House, a one-term President confirmed by polls and a Federal Reserve that is focussed on one simplistic battlefront. That of inflation.
Look away political/fiscal mismanagement and historically aggressive rate hikes, in response to an economy in recession.
While in China, we have a slightly artificially generated risk of recession due to a Zero-Covid policy. This policy has been confirmed to remain in place indefinitely. This means China will see further economic disruption over the coming year.
Europe has war and energy scarcity. China, a policy recession risk. In the USA, an actual recession. The whole world is dealing with superinflation and lingering supply chain disruption.
While the rally on Wall Street, in response to a mere reversal of bad policy with no new policy in the UK, all rather desperate and odd to say the least, was impressive, it is unlikely this immediate rally can last beyond a few days.
Some short covering and the ‘buy the dip’ cult playing its cards yet again is unlikely to overwhelm the ‘out the window’ reality of an economic situation which continues to deteriorate in every direction.
Suggest respecting the current rally, but always watching closely for a very quick and sharp reversal back to the downside, in a big way, yet again.
Market insights and analysis from Clifford Bennett, Chief Economist at ACY Securities
