Take away the umbrella
Jan. 26th, 2010 11:48 am![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
peterbirksIt looks almost certain that the Chinese cabinet has said to the banks that "enough is enough" and has told them to stop lending money as if it is going out of fashion. The big players had already anticipated this -- Shanghai's exchange peaked in November, Hong Kong's last month. The Shanghai Index fell another two or three points once it became official that the tap was being turned off.
It's quite incredible that the UK media (well, the western media in general), pay the closest attention to UK and US macro-economic decisions (as if a decision by Darling could have any more than a minor effect) and virtually none to those of the Chinese government. This is despite Brown saying on TV that it is "a global recession". Yep, that's right mate, so stop pretending that any decision you make matters a toss.
The Bank of China told six banks on January 19 to stop lending; its particular target was Shanghai. This probably means that the regional lending will continue for a while yet. Shanghai was the most worrying area and there was a strong suspicion that the borrowed money was being used to speculate rather than invest. The Bank said (unofficially) that authorities wanted to "rebalance monthly and quarterly lending as much as possible". This was after a large amount of credit was extended in the first 20 days of January.
The impact of this on western markets this year is likely to be profound. The $1trn stimulus last year from China must have had as big an impact on the UK economy last year as the VAT change and the car scrappage scheme combined. With all three now put into reverse, it's hard to be bullish about anything in 2010.
However, as is always the case, things do not move in perfect synch. And the China effect is a new phenomenon, which means that some lead indicators might be less leading than they usually are, and some lagging indicators might be less lagging (or, alternatively, the effects might be exaggerated). The classic lead indicator is the stock market, and the classic lagging indicator is unemployment. If these hold true this year, we should see a stockmarket decline before the end of February, while employment levels start to improve (although it should be noted that distortion of employment and unemployment levels is something that UK governments can distort in the short term, even though they can do little to change the long-term trend) until the end of the year, when the numbers will start to look bad again.
The stockmarket itself doesn't move in unison either. Will the cyclical stocks shift suddenly into reverse while the defensive stocks zoom up? This doesn't feel right to me, although if the consensus is that we are entering a double-dip (in essence, mirroring the markets after the 1929 crash) then that would be the logical move.
In currencies, it looks to me to be a definite short-term bullish sign for the dollar, followed by the Yen, followed by sterling (roughly flat this year against the total basket)and with the euro as the poor laggard. Sterling predictions for Dec 2010: $1.46, €1.22. That brings the $/EUR rate back to $1.19/EUR1.00. The commodity currencies (CAN, AUS, NZ) are likely to suffer this year because they are seriously dependent on growth in the world's two major economies.
For the UK the one (dubious!) plus is that we don't have all that much of a manufacturing industry left to die. In other words, our numbers don't add up, but they didn't add up last year anyway.
+++++++++++++++
Later:
You just wonder how Jack Staw manages it. Just after you think that your opinion of him cannot get any lower, he looks even more of a fool. Elizabeth Wilmshurst today just made him a figure of fun.
Oh, and we are still waiting for a ruling from his department that was promised six months ago at the latest. The only problem is that the Labour backbenches are now so full of people who used to be ministers before they became laughing stocks (Hoon and Hewitt actually are still keeping their hand in, despite being on the backbenches) that it's hard to imagine Straw looking out of place.
Great lines from the inquiry:
Chilcot: Did the fact that he is a qualified lawyer make a difference
Wilmshurst: He's not an international lawyer....
Talk about a rapier-like put-down.
It's quite incredible that the UK media (well, the western media in general), pay the closest attention to UK and US macro-economic decisions (as if a decision by Darling could have any more than a minor effect) and virtually none to those of the Chinese government. This is despite Brown saying on TV that it is "a global recession". Yep, that's right mate, so stop pretending that any decision you make matters a toss.
The Bank of China told six banks on January 19 to stop lending; its particular target was Shanghai. This probably means that the regional lending will continue for a while yet. Shanghai was the most worrying area and there was a strong suspicion that the borrowed money was being used to speculate rather than invest. The Bank said (unofficially) that authorities wanted to "rebalance monthly and quarterly lending as much as possible". This was after a large amount of credit was extended in the first 20 days of January.
The impact of this on western markets this year is likely to be profound. The $1trn stimulus last year from China must have had as big an impact on the UK economy last year as the VAT change and the car scrappage scheme combined. With all three now put into reverse, it's hard to be bullish about anything in 2010.
However, as is always the case, things do not move in perfect synch. And the China effect is a new phenomenon, which means that some lead indicators might be less leading than they usually are, and some lagging indicators might be less lagging (or, alternatively, the effects might be exaggerated). The classic lead indicator is the stock market, and the classic lagging indicator is unemployment. If these hold true this year, we should see a stockmarket decline before the end of February, while employment levels start to improve (although it should be noted that distortion of employment and unemployment levels is something that UK governments can distort in the short term, even though they can do little to change the long-term trend) until the end of the year, when the numbers will start to look bad again.
The stockmarket itself doesn't move in unison either. Will the cyclical stocks shift suddenly into reverse while the defensive stocks zoom up? This doesn't feel right to me, although if the consensus is that we are entering a double-dip (in essence, mirroring the markets after the 1929 crash) then that would be the logical move.
In currencies, it looks to me to be a definite short-term bullish sign for the dollar, followed by the Yen, followed by sterling (roughly flat this year against the total basket)and with the euro as the poor laggard. Sterling predictions for Dec 2010: $1.46, €1.22. That brings the $/EUR rate back to $1.19/EUR1.00. The commodity currencies (CAN, AUS, NZ) are likely to suffer this year because they are seriously dependent on growth in the world's two major economies.
For the UK the one (dubious!) plus is that we don't have all that much of a manufacturing industry left to die. In other words, our numbers don't add up, but they didn't add up last year anyway.
+++++++++++++++
Later:
You just wonder how Jack Staw manages it. Just after you think that your opinion of him cannot get any lower, he looks even more of a fool. Elizabeth Wilmshurst today just made him a figure of fun.
Oh, and we are still waiting for a ruling from his department that was promised six months ago at the latest. The only problem is that the Labour backbenches are now so full of people who used to be ministers before they became laughing stocks (Hoon and Hewitt actually are still keeping their hand in, despite being on the backbenches) that it's hard to imagine Straw looking out of place.
Great lines from the inquiry:
Chilcot: Did the fact that he is a qualified lawyer make a difference
Wilmshurst: He's not an international lawyer....
Talk about a rapier-like put-down.
