Commencing this evening, the Chinese will begin releasing economic data which will provide clues about the status and strength of their economy. Today's data release will give us the summary of new loans issued to consumers and business during the previous month, the amount of Foreign Direct Investment, the M2 Money Supply, and the Trade Balance for November. The data drop will get even more interesting tomorrow with the CPI, the PPI, Retail Sales, Industrial Production and ytd Fixed Asset Investments. A spokesman for the National Bureau of Statistics will then hold a press conference with an official statement.
The Chinese economy has, for years, been an economy on steroids. When the global financial crises hit in 2008, their officials took actions to immunize their economy from the global malaise. An Asia Times article by Olivia Chung entitled China Cautious in Fight on Inflation summarized some of these efforts and the results:
"In a bid to counter the emerging economic slowdown brought by the global
financial crisis and China's declining exports, Beijing
launched a 4 trillion
yuan (US$600 billion) infrastructure-focused
stimulus package in November 2008.
It has also opened up the credit market to help
enterprises expand.
Since then, the economy has been growing steadily. The
official purchasing
managers' index (PMI), a leading indicator of economic
activity, rose to 55.2
in November from 54.7 in October, the China Federation
of Logistics and
Purchasing (CFLP) said last Wednesday.
It marked the 21st straight month that the figure has
stood above the threshold
of 50, a reading above which indicates economic
expansion.
However, the loose monetary policy has led to soaring
housing prices and rising
inflation in recent months.
The main inflation driver remains food, which accounts
for one third of the
basket of goods used to calculate China's CPI. Food
prices surged 10.1%
year-on-year in October, compared with an 8% gain in
September, 7.5% in August,
6.8% in July and 5.7% in June."
It seems peculiar that the Chinese are going to release most of the data after the markets are closed. There have been rumors that bank reserves will be increased again and the interest rates are headed higher, but with food prices running away, the action had best be decisive.
Last weekend in the Daily Telegraph, in a column by Ambrose Evans-Pritchard it was reported:
"The Royal Bank of Scotland has advised clients to take out protection against the risk of a sovereign default by China as one of its top trades for 2011........It warns that the Communist party will have to puncture the credit bubble before inflation hits the levels that threaten social stability. This in turn may open a can of worms.
'Many see China's monetary tightening as a pre-emptive tap on the breaks, a warning shot across the proverbial economic bows. We see it as a potentially more malevolent reactive day of reckoning,' said Tim Ash, the banks emerging market chief."
Could it be that, as the late Don Meredith used to sing on Monday Night Football, "The Party's Over." The data, especially the CPI, and the officials reaction to that data will be so important. Years ago they used to say when the US economy got a cold, its trading partners got pneumonia. Will not China, now the world's second largest economy, have a similar effect on its trading partners?
It is difficult to forecast both the Chinese data and the impact on the Forex markets. Japan, as China's largest supplier, may have the biggest exposure to contraction of Chinese economic activity. The USD has made modest gains versus the yen, moving up to toward the 84 handle. The trend seems to favor the USD, but unless we can buy the pair in the 83 area, it is probably best to go through the reports as an observer.
Author: Ralph Shell - ForexRazor Analyst - Graduated from a small Ohio liberal arts college. Graduate studies in economics and history at Duke University. Ten years experience trading cash commodities in domestic and export markets. Former commodity analyst with Merrill Lynch in Chicago. Member of and floor trader at the Chicago Board of Trade for 18 years.