Spectre Of An Economic Relapse Stalks Markets As China Wobbles

[interestrateripoff]

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7866896/Spectre-of-an-economic-relapse-stalks-markets-as-China-wobbles.html

Fears of an economic relapse across the world have begun to stalk markets again after pending homes sales in the US crashed by a third and a slew of weak data from China and Japan sent bourses tumbling across Asia.

The credit system is once again flashing warnings of extreme fragility, with the yield on 10-year US Treasuries plummeting back to crisis-levels of 2.89pc. Japan's 10-year bond dropped to 1.06pc, the lowest since the country's deflation battle seven years ago. Tokyo's Nikkei stock index tumbled to the lowest level since 2005 as safe-haven flight into the yen surged to levels that leave many Japanese exporters underwater.

"Double-dip is back in the lexicon," said David Bloom, currency chief at HSBC. "Everybody hoped that China's huge fiscal package would keep global growth going long enough for the West to recover, but it does not look like that is happening.

"China is now slowing but the US housing market is falling off a cliff. It's cataclysmic. In Japan the data is turning nasty, and fiscal tightening is just starting in Europe and the UK, so everybody is asking where the growth is going to come from," he said.

Goldman Sachs said its gauge of Global Leading Indicators had peaked. "Signs `under the hood' have pointed to some slowing momentum. Industrial growth is set to decelerate," said the bank.

The US National Association of Realtors said the numbers of home buyers signing contracts dropped 30pc in May from a month ealier, confirming fears that the expiry of subidies would lead to a cliff-edge fall in sales. "Tax credits merely cannibalised sales for the coming months, and did not succeed in jump-starting a lasting recovery of the housing market," said Teunis Brosens from ING.

The US property market is haunted by worries that a cluster of "option ARM" mortgages will reset upwards over the coming months, leading to a fresh wave of defaults. "Payment option ARMs are about to explode," said Iowa's Attorney General Tom Miller after a White House meeting on housing.

The new twist for investors is the sudden slowdown in China. The HSBC/Markit index of Chinese manufacturing has fallen from a high of 57.4 in January to 50.4 in June, the result of monetary tightening and curbs to cool the red-hot property market.

Wensheng Peng from Barclays Capital said the risk of double-dip is small. "We are seeing a policy-led soft landing, a slowdown that is desired and targeted by the government," he said.

However, analysts are deeply divided on China. A report by the European Chamber in China said there was pervasive over-capacity in steel, cement, chemicals, refining, and energy equipment.

"The Chinese government's massive stimulus package is being pumped into building new plants and adding uneccesary capacity. The problem is getting worse in many industries," it said, claiming that usage rates were as low as 35pc in some sectors.

Professor Victor Shih from Northwestern University in the US has warned that local entities have borrowed $1.7 trillion, using inflated land values as collateral. China's authorities have played down these concerns, denying that credit has been allowed to balloon out of control as it did in Japan during the 1980s. But it is an open question whether the Communist leadership can calibrate fine-tuning any better than the rest of the world.

Clearly China's slowdown is starting to send ripples through Asia and commodity markets, with knock-on effects for Australia. The Baltic Dry Index measuring freight rates for bulk goods has almost halved since October, a trend that is now surfacing within Chinese shipping and port data.

Japan's unemployment jumped to 5.2pc in May, and households have cut spending over the last two months. Industrial output slipped 0.1pc. Overseas shipments fell 1.7pc.

Europe's recovery looks ever more fragile. French consumer confidence has weakened for five months in row. The eurozone manufacturing index slipped in June. Britain has seen a sharp fall in new export orders. Turkey's exporters have reported a sudden drop in demand from Europe in June.

It is not yet a global double-dip, but bourses from Tokyo to Shanghai, Frankfurt, London, and New York are all signalling a clear risk that we face a "truncated" V-shaped recovery, a plateau where we grind along at best with stubbornly high unemployment. At worst, it could be the start of a deeper slump as yet more chickens come home to roost from the credit crisis.

Very bearish article.

Just where exactly are the bulls thinking the growth is going to come from?

Global data is very bad, but still at least it's contained to just several geographical areas and it's not a global problem.

[Si1]

face a "truncated" V-shaped recovery, a plateau where we grind along at best with stubbornly high unemployment

this was pretty expected to be honest - did anyone really expect we'd have a galloping recovery overnight? I mean overnight, not at some year in the medium term.

not that bearish really- confirmatory.

growth will come from commerce trade and industry, as it always has done. so many personal and corporate finances are a mess that this will take time to clear up, naturally. If it takes too long then the govt will need a plan B to deal with lack of private sector job creation. Not come to that yet.

Edited July 2, 2010 by Si1

[aa3]

China was starting to overheat a little bit earlier in the year. Now they have cooled it down to a sustainable level. This easing of pressure lets commodities prices fall. And commodities are where a huge part of profits are coming from.

Personally I like what I see from China. Their inflation is right on the national target, wages are growing nicely in real terms. They look set to hit 10-12% gdp growth this year. But from the perspective of stock markets and profits.. the big money is when there is huge shortages in a commodity and the profit margin shoots sky high.

[Si1]

http://baselinescena...%99s-china-bet/

that's a pretty diffuse article, not really got a point to it. Hedges its bets in every way . Yeah, China potential driver of growth, possiblke bubble now or on the future. Central planning not perfect, nor is free marketeering. etc.

[aa3]

http://baselinescenario.com/2010/07/01/the-g20%E2%80%99s-china-bet/

Imo China is about 9% of the global economy, so if it grows 11% as I expect, then that adds 1% to the global economy.

Edited July 2, 2010 by aa3

[Realistbear]

Exactly, what growth?

Perhaps it's time for war, mmmmmmmmmmmm.

The lead up to the Great Depression and the years following was a time of remarkable peace in the world. WW2 only happened because of the half-**** peace that followed the first round.

But I do agree with Ed at the DT. Its grim. And indeed where is the growth coming from with China and the US going down and the EZ on the brink of their own mega-crash. We are the only well-placed nation on the planet which should keep HPI on track, the Pound resilient and our bonds flying off the shelves.

[Si1]

the rest of the G20 is pinning its hopes on it to engineer a soft landing...

China, Germany - creditor nations in other words

I suspect journalists see China as an easy story in this case, sure rebalncing is necessary and China not doing sufficient (which it looks like it isn't) would throw a spanner in the works

so on that basis - more a question of the G20 pinning its hopes on China NOT throwing a spanner in the works rather than China being the sole starter-motor of growth. so maybe I'm not far different from that.

Edited July 2, 2010 by Si1

[aa3]

The point I took was that China represents only 6% of the world economy but the rest of the G20 is pinning its hopes on it to engineer a soft landing to good growth that will continue to support commodities and the rest of the world.

Reminds me of Germany's plan which seems to be to export its way out of problems. It sort of makes sense when talking about just Germany by itself. But today the whole EU is about 30% of the global economy. They ARE the market. So thinking has to move just from producing, to both producing and consuming.

A small nation in the global economy can literally reduce consumption and focus on production. But the mass nations don't have anyone they can export to.

[mbga9pgf]

Reminds me of Germany's plan which seems to be to export its way out of problems. It sort of makes sense when talking about just Germany by itself. But today the whole EU is about 30% of the global economy. They ARE the market. So thinking has to move just from producing, to both producing and consuming.

A small nation in the global economy can literally reduce consumption and focus on production. But the mass nations don't have anyone they can export to.

Starting to look like that lifetime base tracker at 1.99% over base was a smart move!

[Si1]

Starting to look like that lifetime base tracker at 1.99% over base was a smart move!

leverage on a house is a good idea based on pending deflation and unemployment?

private income elsewhere? very solid job?

[The Masked Tulip]

China is now slowing but the US housing market is falling off a cliff

What an odd statement - no justification or reasoning for it. Just thrown in there. How and why is he making that statement?

We're not seeing anything like that on here are we? Some drops in asking prices beginning but little evidence of a cliff on the horizon even.

[mbga9pgf]

leverage on a house is a good idea based on pending deflation and unemployment?

private income elsewhere? very solid job?

Yep, seeing as we bought at 30% off the original valuation, we both have secure jobs and the mortgage for the forseeable is just over 1/3 of single salary.

Besides, we found the "forever" house, not somewhere that was a stepping stone. The decision was a no-brainer.

its a B@stard having to cut 1 acre of paddock every 2 weeks with a 52cm petrol mower!

[pilchardthecat]

Does this mean petrol is going to get cheaper? It's just that i'm thinking about buying a mid life crisis car that does 20mpg

[Si1]

Yep, seeing as we bought at 30% off the original valuation, we both have secure jobs and the mortgage for the forseeable is just over 1/3 of single salary.

Besides, we found the "forever" house, not somewhere that was a stepping stone. The decision was a no-brainer.

its a B@stard having to cut 1 acre of paddock every 2 weeks with a 52cm petrol mower!

well please post in the 'smug homeowners got a decent deal' section elsewhere on this site, or post something on-topic

[R K]

One of these tends to have something eating it.

On the other hand you could set up An All England Scything competition and charge people to enter.

http://www.viikateniitonmm.fi/?s=rules

http://www.onescythe...-in-europe.html

I've found the online scything community to be surprisingly big . Particularly in Germany where petrol mowing is banned at weekends and there is that outdoor healthy thing going on. Perhaps a naked competition would attract competitors from the Vaterland.

Are you sure naked scything is a such good idea?

Does one scythe fit all?

[aa3]

Starting to look like that lifetime base tracker at 1.99% over base was a smart move!

Friends and family are thanking me for talking them into the trackers.

[abharrisson]

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7866896/Spectre-of-an-economic-relapse-stalks-markets-as-China-wobbles.html

Very bearish article.

Just where exactly are the bulls thinking the growth is going to come from?

Global data is very bad, but still at least it's contained to just several geographical areas and it's not a global problem.

I think with current spate of bad news its very easy ( and not necessarilly wrong) to be in the "batten down the hatches the end is nigh" camp... euro probs, no growth in the states, chinese shenanigans, BP issues, IMF credibility gap, stock market corrections, housing still in bubble territory as are other asset clases etc etc ...... BUT despite all the temptations to strap on the tin hat and kiss my **** goodbye I am still clinging onto the belief that having had the world's biggest financial earthquake in 2007/2008 these are aftershocks and they will continue for quite some considerable time, but aftershocks remains to me the best characterisation of them and as each passes so the future gets just a little bit brighter.

[interestrateripoff]

I am still clinging onto the belief that having had the world's biggest financial earthquake in 2007/2008 these are aftershocks and they will continue for quite some considerable time, but aftershocks remains to me the best characterisation of them and as each passes so the future gets just a little bit brighter.

So option ARM resets etc... have been priced in and are merely aftershooks?

[Alan B'Stard MP]

So option ARM resets etc... have been priced in and are merely aftershooks?

Problem with ARM is they have already booked and spent the profits by putting a in placeholder called "ARM repayments".

It's double bubble trouble now - the money isnt coming - but the profits are already moored in a marina in florida.

Edited July 2, 2010 by Alan B'Stard MP