View from London: A 19th Nervous Breakdown in China?

10/18/2017 12:15 pm EST

Focus: STOCKS

Robert Savage

Partner & CEO, CCTrack Solutions

China’s Xi makes clear it’s party first, reforms second, markets last. The risk of trouble in 2018 remains with PBOC and policy still doubted in face of too much debt, writes Bob Savage, CEO of Track Research in his Wednesday commentary.


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Central bankers continue to rule the markets – with Europe running higher as hopes continue for QE extension in 2018.

The U.S. remains in a Goldilocks state while emerging market benefits the most as China has its 19th Party Congress rather than a Rolling Stones, 19th nervous breakdown.

The macro story for buying equities without fear rests on the present global growth rate modestly but steadily eating away at excess capacity until inflation reaches the magic level of 2% in major economies, whereupon, central bankers will declare victory and modestly raise rates back to “normal.” The problem rests in the speed of growth and the speed of inflation.


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In the UK the focus today was on jobs and particularly the wages as the inflation report at 3% y/y with wages below that show the other problem – if inflation goes up but wages don’t, politics and growth get worse.

The UK is on the front lines of this hesitancy but the U.S. maybe not far behind even as the FOMC seems miles in front of the BOE on the path towards normalization.

Of course, if you read the papers today, nothing but the 19th Party Congress in China matters with Xi making clear it’s party first, reforms second, markets last. The risk for a China 7% GDP in 2H2017 seems clear but the risk of trouble in 2018 remains with PBOC and policy still doubted in face of too much debt.

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