Germany remains the proverbial strong man of Europe, but we are skeptical that this is a fitting moniker. Looking at exports, it is now clear that Germany and thus Europe continues to see weakness. The total value of German exports has now clearly rolled over from its peak in mid-2012, which coincides with the share of total exports going to China.
Our leading indicator for China has turned down further which adds to the impression of an overall weak turn in Chinese growth. We would still term the turning point as intact, but all components of our leading indicator recently came in with negative readings.
Chinese reserve accumulation has slowed down rapidly. As a result the growth of foreign ownership in US treasuries (USTs) has fallen. The global liquidity pump of Bretton Woods II, in which pegging emerging markets are recycling their increase in foreign exchange reserves into US treasuries in order to keep their currencies stable against the USD, has slowed, but not stopped altogether.
One of the world’s biggest commodity producers, BHP Billiton, recently got a lot of attention by suggesting that the so far insatiable Chinese demand for commodities may have come to an end. The argument is simple enough: the rate of growth in China is slowing. However, the implications for commodity exporters, such as Australia, who have invested dizzying sums of money in expanding capacity to reflect an ever higher increase in Chinese commodity hunger, may be very big indeed.
Following the pattern we have identified in other countries in the region, Ukraine is once more getting itself into a deeper and deeper mess
The market has recently taken relief from the decision by China to lower the reserve requirement ratio (RRR) as well as the signal that it will be the first of a series of cuts. The real story however is that the shift comes in response to a sharp slowdown in both domestic and external demand in the first quarter of 2012 and thus it seems that investors may have taken too much comfort in the strong Q4-11 GDP print.