E Markets: Lunacy

Over the full wolf blood moon and its eclipse, howling investors got more and less than they wanted. Eclipses bluntly remind us all of our prehistoric past when gods ate the moon and spit it out again when myths were the best explanation for the present chaos. Stories are the template for future action. The China economic data for 4Q was the slowest growth pace since 1Q2009. The retail sales are near 18-year lows. Industrial production surprised to the upside but fixed investments stalled. Perhaps the most important headlines were about the US/China trade talks stuck on intellectual property issues.  The net reaction of markets in Asia was positive but in Europe less so as the markets are in doubt of the veracity of the data and the power of the present stimulus overlayed against the fears of a breakdown in the trade talks. This puts this week and the craziness of the rally up in risk against the well-worn fears of US politics, US growth, UK Brexit, central bank policy mistakes – with the ECB and BOJ this week – and geopolitical problems highlighted at Davos; all of this makes risk-on less easy to believe.  The rally up in the USD/CNY overnight highlights the doubt in play and the need to hold 6.88 over the next few weeks as critical for those that yearn for the simplicity of buying and holding risk assets. 

Question for the Day: Will China stimulus be enough? The feel-good moment for Asia post the GDP release came with the surprise uptick in China industrial production.  The distraction is that electricity production zoomed higher while other things were less positive. The ability for China to grow out of the middle-income trap, to move from investment led to domestic-led growth and to have a centrally controlled economy dictate the best allocation of resources for growth all that is in doubt and in play for 2019. The stimulus hopes, post the data release, remain central to global markets in 2019. The key concern is that the private sector is no longer part of the growth story.

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