Chart of the Week: China credit impulse
Head of Macro Analysis
Summary: Our 'Macro Chartmania' series collects Macrobond data and focuses on a single chart chosen for its relevance.
Click here to download this week's full edition of Macro Chartmania.
Here and there, we hear that the market is too optimistic about the recovery and that next year many challenges, from vaccine delivery to wave of bankruptcies, remain that could seriously jeopardize the exit from the pandemic era. At Saxo, we don’t think we are wearing red-colored glasses when we say that the year 2021 should be marked by a strong global recovery driven by central bank liquidity and positive growth impulse from China. The below chart represents the evolution of China credit impulse which is basically the change in the growth rate of aggregate credit as a percentage of gross domestic product. This is certainly one of the most important indicators for investors looking to know where the global economy is heading into next year. It is worth watching it as it leads the global economy by 9 to 12 months. For the first time since the 2015 yuan devaluation, China credit impulse is running above 5% of GDP. To be precise, it was standing at 6.2% of GDP in Q2 this year, at the time of the global lockdown. Even if credit impulse is close to a peak for the downturn phase of this mini-cycle, the flow of credit from the worst period of the health crisis will continue to support the global recovery at least until the end of Q1-Q2 next year. The strong improvement in China credit impulse is one of the two reasons, along with the sharp increase in global central bank liquidity since the outbreak, that makes us optimistic about the economic recovery next year. It will not be linear, and there will certainly be difficulties, but it is safe to say as this chaotic year is about to end that the worst is probably behind us. In terms of investment decision, the strong push in credit from China should be good for risky assets (notably emerging and frontier markets) and contribute to the reflation narrative.
Latest Market Insights
Q4 Outlook 2022: Winter is coming
- Winter is coming to the financial markets as central banks are tightening their grip. How spring will look is still a question.
European energy crisis: it will get worse before it gets betterThe winter in Europe will be tough, but whether the result is political chaos or sustainable, innovative solutions is still undecided.
A difficult and volatile quarter awaitsAs the year draws to an end, commodities continue to be at centre stage of the world with growth pockets political uncertainty.
The bright side: crises drive innovationThe positive spin on crises is that they come with solutions. It is worrisome that deglobalisation may be a response to this crisis.
Green transformation in China: renewable energy and beyondGoing green, China needs to span numerous energy sources to ensure stability, as every source comes with a challenge.
Asia: Intermittent solutions, but a faster renewable adoption curveAsian energy supply is being squeezed. This and the adoption of renewables may change the investment sentiment in the region.
FX: A Fed thaw needed to deliver a sustained USD turn lowerThe US Dollar can keep momentum when the Federal Reserve continues to tighten, leaving the rest to play to their drum.
Autumn can become ugly for equities and bond holders. Comfort for Dollar longsTechnical analysis suggests that equities could face a tough Q4 as could fixed income. US Dollar positions could provide some upside.
The next stock market sector to watch, with stocks going nuclearAs the world scrambles to find affordable, sustainable energy, nuclear is getting attention from politicians and investors alike.
The crypto space is getting cold when the hype disappearsCryptocurrencies face a winter of their own as retail investors and governments are asking tough questions.