Good morning,
New policy same as the old policy in China
China is backing itself to avoid a hard landing according to policy announcements at the National People’s Congress over the weekend. The huge meeting of policymakers and officials plumped to set the growth target for the Chinese economy to 6.5-7.0% for the next 5 years. Officials are confident that the minimum level of growth seen between now and 2020 will be 6.5%; lower than last year’s 6.9% – a 25 year low.
They hope to secure this level of expansion via an ever expanding deficit and an expansion of the money supply – similar in thinking to the Japanese Abenomics plan. The Chinese authorities have looked at the opposing desires of growth and deleveraging and chose to focus on the safe, warm feeling of the former.
Policymakers also spent a great deal of time chatting about the CNY and we think that plans to allow further volatility through the currency will be maintained through the upcoming years. There is a decent expectation of USDCNY strength this year however data disappointments and positioning mean that downside swings are also extremely likely.
US jobs optimism hampered by poor wages
Friday’s jobs data was a true Goldilocks report; strong headline number (242,000 jobs added) that really surprised the consensus but the first drop in earnings since December 2014. We are happy with the thoughts that the wage data was unreliable in February given the timing of the surveys and the fact that one important pay day was therefore not included.
The implications are obvious both domestically and globally. High and rising employment coupled with an unemployment rate close to the natural lows of around 5% is finally starting to create wage pressures. But is the knock on effects outside of the US economy are altogether more important. Everything, and I do mean everything, is in such a state of flux at the moment that a poor number today would really put the knockers on the global economic outlook.
Chinese growth, European inflation and the reaction function of the European Central Bank, deflation and negative bond yields are not going to become suddenly unproblematic as a result of strength in the US jobs market but the levels of uncertainty that the globe is currently labouring under are drawing parallels with the Global Financial Crisis.
Greece back on the radar
An example of this is Greece. We are starting to hear more and more about funding issues, visits from the European Union and the IMF, and budget negotiations. I would not be surprised if the last days of the EU referendum campaign in the UK is conducted under a cloud of Greek bailout and Grexit chatter. A meeting of EU leaders on the migrant crisis takes place in Brussels today but we expect further noises about Greek budgetary constraints than a plan to deal with the men, women and children arriving in dinghies.
Yougov show Remain back in the lead
Sterling has once again traded quietly over the weekend despite more referendum bluster from Boris and the CBI. Yougov released 5 polls over the weekend with the most recent one taken last Wednesday and Thursday showed the Remain camp on 40% and Leave on 37%. Similarly the 3 polls beforehand also had the Remain vote out in the lead which is a reversal of recent polling from the company; it will be interesting to see if this is reflected in other polls.
Have a great day.