The US Dollar extended its pullback recently against a host of currencies. That’s being driven by revised opinions of which major economy is going to cut rates first. There is also the “minor” question of how deficits are going to be tackled in an environment where economic activity is slowing enough to prompt central banks to cut rates, notes Eoin Treacy, editor of Fuller Treacy Money.
The additional question of whether the US economy is overheating is relevant and only makes the Fed’s job even harder.
As for crude oil, I wonder how long Russia’s cozy relationship with OPEC is likely to last if they continue to resist shouldering the burden of supporting prices. That was likely on the agenda when Valdimir Putin visited Saudi Arabia recently.
The last OPEC+ decision was voluntary which means they could not come to a consensus. Saudi Arabia was left with the responsibility of imposing the largest cuts to production. At the same time, the timelines for some of the country’s most ambitious development projects have been extended. That can’t sit too well with the current administration.
Pivoting to the global growth outlook in general – and China in particular – the importance of China’s credit impulse is well understood. That’s because it was so predictable until the post-pandemic deleveraging process currently underway.
It is reasonable to believe the Chinese government does not want the property sector to crash. However, that does not mean they are going to follow the same playbook as in the past. The primary issue is they now view property prices as a national security issue. A repeat of the post GFC surge in asset prices is not the desired outcome. That implies continued piecemeal efforts to support markets.
Meanwhile, the existence of a credit cycle in India’s economy in the post-financial reforms period is also evident but much less remarked upon. However, there is no question that India’s credit cycle has been on an upswing for the last couple of years and has further room for expansion.
It is true that China is not about to launch another billion people into the global economy, but India and Africa are going to birth two billion in the next thirty years. The only conclusion we can draw is the type of growth we have become accustomed to from China will take place elsewhere for the next thirty years.