Giles Coghlan LLB, Lth, MA
Financial Source
The news this week that the IMF lifted its global growth projections was largely placed at the feet of China’s Covid Zero pivot. The IMF raised its 2023 growth forecast to 2.9% from 2.7% citing China’s re-opening as a key reason.
Inflationary forces?
The news over China’s pivot has been gathering pace since the end of last year. Remember that China’s command economy would mean abrupt u-turns are problematic from a messaging point of view. The reaction to the Covid protests around the same time the world cup was broadcasted, when people were freely mingling, was about as close to a pivot being signaled as we were going to see. However, Kristina Georgevieva, the head of the IMF, pointed out that there is a double-edged nature to China’s re-opening. It may be inflationary. So, if demand for oil once again rises and that boosts oil prices then that also increases global inflationary pressures.
A fair point to watch
It is not impossible to see a sudden surge in demand domestically in China too as restrictions being lifted allow pent-up savings to be spent. Last year China’s trade surplus rose 31% y/y as exports increased by 7%, but imports only rose by 1%. This reflected the opening up of other major world economies even as China remained under a range of restrictions.
China’s headline inflation print for Decemver 2022 was at 1.8% and that is down from a 2.8% peak in September 2022, so there is no sign of major concerns there just yet. However, it will be worth watching.
China’s re-opening can benefit Oil
So, keep an eye on oil prices too as this will be a key inflationary force. Higher oil generally means higher inflation forces as costs are injected into economies. Oil markets have formed a key technical Head and Shoulders bottom on the daily chart and news of China being back for business could well be the catalyst oil needs to break higher over the coming weeks. See here for an explainer video on how to trade the Head and Shoulders pattern.
Our products and commentary provides general advice that do not take into account your personal objectives, financial situation or needs. The content of this website must not be construed as personal advice.
Recommended Content
Editors’ Picks
EUR/USD stays below 1.1100, looks to post weekly losses
EUR/USD continues to trade in a narrow range below 1.1100 and remains on track to end the week in negative territory. Earlier in the day, monthly PCE inflation data from the US came in line with the market expectation, failing to trigger a reaction.
GBP/USD struggles to find a foothold, trades near 1.3150
GBP/USD stays on the back foot and trades in negative territory at around 1.3150 on Friday. The US Dollar holds its ground following the July PCE inflation data and doesn't allow the pair to stage a rebound heading into the weekend.
Gold retreats toward $2,500 ahead of the weekend
Gold stays under modest bearish pressure and declines toward $2,500 in the American session on Friday. The 10-year US Treasury bond yield edges higher toward 3.9% after US PCE inflation data, causing XAU/USD to stretch lower.
Week ahead – Investors brace for NFP amid Fed rate cut speculation
Here comes another NFP week, with investors eagerly awaiting the results as they try to discern the size and pace of the Fed’s forthcoming rate cuts. The weaker than expected July numbers triggered market turbulence, instilling fears about a potential recession in the US.
Easing Eurozone inflation to back an ECB rate cut in September Premium
Eurostat will publish the preliminary estimate of the August Eurozone Harmonized Index of Consumer Prices on Friday, and the anticipated outcome will back up the case for another European Central Bank interest rate cut when policymakers meet in September.
Moneta Markets review 2024: All you need to know
VERIFIED In this review, the FXStreet team provides an independent and thorough analysis based on direct testing and real experiences with Moneta Markets – an excellent broker for novice to intermediate forex traders who want to broaden their knowledge base.