As inflation-deluded markets begin to wake to the China deflation shock that’s been obvious to MB readers for months, I am beginning to wonder if what lies ahead is a little less benign than my original thoughts. There is no cause for panic. If the worst were to come to pass and a market accident to transpire then I’d see it as a buying opportunity anyway. But for the first time in six months or so, I can see a convergence of events and narratives that could cause markets some nasty dyspepsia.
Chinese growth
The first factor to consider is the amount of policy tightening that is underway in China.
Broad credit is retrenching very fast. Bank lending is pulling back at the swiftest pace in twenty years and pressure remains on shadow banking:
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