SHANGHAI, CHINA – Tourists pose for photos at Shanghai Disney Resort as the resort kicks off a festive month from January 13 to February 10 to celebrate the upcoming Chinese New Year.
China News Service | China News Service | beautiful pictures
With the end of China’s strict Covid restrictions, the country quickly economic recoveryconcerns about pent-up Chinese demand — and possible inflation afterward — could be bad news for the US Federal Reserve.
Economic data pointed out that aggressive Fed rate hikes are dragging down US inflation, but Chinese demand could send commodity prices back to levels from early 2022, before the US central bank started to act. interest rate hikes to reduce inflationary pressures.
“In our view… a stronger China increases the chances of a hawkish Fed,” said Tavis McCourt, institutional equity strategist at Raymond James, in his 2023 Outlook. .
“With China, we need more – if that boosts demand enough to bring commodity prices back to near where they were last spring, that would make the inflationary progress we’ve seen.” becomes much more fragile. location,” he said.
With activity expected to increase from China, demand for a variety of goods will increase, McCourt said.
“As consumers are allowed to get out of their apartments and start becoming more mobile, there will be more demand for gasoline and jet fuel,” he said. “Demand will come back very quickly.”
Commodity prices have actually increased significantly since December, when China announced plans to lift some of its strictest Covid measures.
Three-month futures contract on the London Metal Exchange was trading at $9,436 on Thursday morning – up about 12.5% month to date. Aluminum Prices also rose 11.7% in January, FactSet data showed.
In fact, Fed officials have voiced concerns about the Chinese economy as a factor that could reverse efforts to tame inflationary pressures in the US economy.
SHANGHAI, CHINA – JANUARY 15: Travelers gather at the gate and wait for the train at Shanghai Hongqiao Railway Station during the tourist peak for the upcoming Lunar New Year holiday on January 15, 2023 in Shanghai. Shanghai, China.
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Fed President St. Louis, James Bullard, said the reopening of China, combined with a lower risk of recession in Europe, could cause inflation to accelerate again.
“They have abandoned the Covid-0 policy and are aiming to reopen China earlier than previously expected, so that looks like new upward pressure on returns in the market. global commodity,” said Bullard during a roundtable talk organized by the Commission. The Wall Street Journal on Wednesday.
“I’m worried that will lead to increased pressure on inflation overall – that’s a risk we have to take into account when doing monetary policy,” he said. “Some factors in favor of the 2022 fad may be reversing here,” he said.
‘Limited spillover’
According to Morgan Stanley, the reopening of China may bring inflation concerns, but the spillover effects on the global economy may be limited.
“It’s recovery [in China] driven more by consumption rather than investment, we see limited spillovers on inflation in the rest of the region,” said the company’s economists, led by the Economist. Asia Chief Economist Chetan Ahya, said in a report on Wednesday.
“Global commodity supply/demand balance is more important, and with global commodity demand still deflationary, it should further limit any spillover effects on regional inflation,” they said. “.
One analyst said commodity prices may have “boomed” but questioned whether that would continue.
Wolfe Research CEO Timna Tanners said on CNBC’s “Street Signs Asia”: “Aluminum prices have really exploded over the past few months, due to the same speculation… regarding China’s opening. back door”.
“We certainly question whether it is sustainable or supported by the data, but it is hard to counter some of these dynamics when it comes to reopening to commerce,” she said.
“We don’t necessarily think there will be a big boom in consumer or aluminum activity, but again, if the market thinks so, and inventories are low and there are some replenishments before Tet Originally, that motivation is really strong.”
