In today’s briefing:
- China and the US: Both Economies Addicted to Stimulus
- Why We Are Both Bullish and Bearish
- What Are the Contagion Effects of a China Slowdown?
China and the US: Both Economies Addicted to Stimulus
- US financial markets became too addicted to generous Fed policy support after the global financial crisis (GFC). Post-pandemic economic conditions are very different. Investors need to realistically reset expectations.
- Pressure on China’s central government to provide economic stimulus will increase as local governments undergo deleveraging after their borrowing binge. Calls for US-style transfer payments to households will be resisted.
- Both the US and China have been addicted to stimulus in varying degrees since the GFC, while major future changes in easy policy dependency is probably more likely in China.
Why We Are Both Bullish and Bearish
- We are bullish and bearish on U.S. equities, depending on the time frame.
- The market is poised for a short-term rebound, but the durability of the rebound is in serious doubt.
- However, the long-term trend of the market is still bullish.
What Are the Contagion Effects of a China Slowdown?
- The market narrative is raising concerns about a China slowdown.
- A review shows that the verdict from the market is the fears are overdone, though China faces long-term growth challenges.
- The equity markets of U.S. and Europe are largely insulated from any China slowdown, though those of Asia and resource-producing countries are more exposed.
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