Some nice material today from Vertical Group on the Chinese slowdown.
QUICK TAKE: In short, our thesis is that city-level and regional macroprudential tightening policies in China currently will render economic growth in 2Q18, but more importantly 2H18, dismal; we believe this will spread to emerging markets, rendering the “global coordinated growth” bulls out of sync with reality. This, we believe, in turn, will weigh on metals prices, pushing many of the commodity pundits (i.e., Jeffery Gundlach) to reassess their bullishness. As this happens, we expect steel/bulk exports out of China to rise (as profitability domestically falls with weakening domestic demand) pushing global bulk commodities prices lower.
Exhibit 1: China Total Credit Growth versus Bank Asset Growth, %Y/Y
Source: Peoples’ Bank of China (PBOC), Vertical Group.
The full text of this article is available to MacroBusiness subscribers
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
