Macrocast

Ajustement du dosage

  • China is slowing down, but it has ample policy space to re-start
  • Uncertainty continues to mount on the next steps for Biden’s fiscal plans
  • ECB communication sounding very confident – the market is taking notice

A cluster of disappointing data suggest the Chinese economy is slowing down significantly, and it is starting to show in European exports. It is not the first time China goes through a “bad patch” since it has become a crucial source of traction for global trade. In 2015 already, Chinese demand softened, with a transitory but visible impact on German GDP. This time as well, bad news on the cyclical front is compounded by financial stability concerns.

Our baseline is that there is ample policy space in China to re-start the economy swiftly, and that Beijing has no interest in allowing “warning shots” to the over-leveraged real estate turning into a systemic crisis. The Chinese government has to constantly find the right dosage between addressing the imbalances of its economy and the sources of social tension– which sometimes implies a transitory cost to growth – and supporting the improvement in living standards which is also key to preserving political stability. The pendulum has gone too far in favour of the first goal recently, and some adjustment in the dosage is needed.

Meanwhile, in the US the data flow last week has been decent, but we suspect the publication of the next payroll data on 8 October will be a big test. In the meantime, the market is likely to focus on the latest fiscal developments in Washington DC. Biden is having difficulties with his own party to get his USD3.5trn over the line.

Between the slowdown in China and the uncertainty in the US, policymakers everywhere should be extremely cautious. We thought Lagarde had found the right balance at her last press conference between welcoming the good news on the European dataflow and keeping an otherwise non-committal approach to any policy normalization. However, since then the communication from the ECB has been very confident, triggering some market movement. The expected timing of the first ECB rate hike has been brought back to late 2024: the impact of the surprisingly dovish revised forward guidance unveiled in July has been entirely lost.

This communication is intended for professional adviser use only and should not be relied upon by retail clients. Circulation must be restricted accordingly.

Issued by AXA Investment Managers UK Limited which is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales No: 01431068 Registered Office is 7 Newgate Street, London, EC1A 7NX. A member of the Investment Management Association. Telephone calls may be recorded or monitored for quality.

Information relating to investments may have been based on research and analysis undertaken or procured by AXA Investment Managers UK Limited for its own purposes and may have been made available to other members of the AXA Investment Managers Group who in turn may have acted upon it. This material should not be regarded as an offer, solicitation, invitation or recommendation to subscribe for any AXA investment service or product and is provided to you for information purposes only. The views expressed do not constitute investment advice and do not necessarily represent the views of any company within the AXA Investment Managers Group and may be subject to change without notice. No representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein.

Past performance is not a guide to future performance. The value of investments and the income from them can fluctuate and investors may not get back the amount originally invested. Changes in exchange rates will affect the value of investments made overseas. Investments in newer markets and smaller companies offer the possibility of higher returns but may also involve a higher degree of risk.