China fears and global growth doubts grip mar­kets

The Pak Banker - - INTERNATIONAL BUSINESS/SPORTS -

Mar­kets will be watch­ing for China's next move as signs of a slow­down in the world's sec­ond-largest econ­omy stack up, rais­ing ex­pec­ta­tions it will act to stoke growth. A loom­ing snap elec­tion in Greece and a closely watched con­fer­ence hosted by the Fed­eral Re­serve in the United States are also likely to keep in­vestors on their toes next week, in par­tic­u­lar as they look for hints on when the U.S. will raise in­ter­est rates. Fears that Chi­nese growth is weak­en­ing, drag­ging down the global econ­omy with it, are al­ready ham­mer­ing com­modi­ties and world stock mar­kets.

Both tum­bled af­ter a sur­vey showed Chi­nese man­u­fac­tur­ing slowed the most since the global fi­nan­cial cri­sis in 2009 - adding to other wor­ry­ing clues about the coun­try's health, in­clud­ing its fall­ing ex­ports. China de­val­ued the yuan ear­lier in Au­gust, by push­ing its of­fi­cial guid­ance rate down 2 per­cent. The cen­tral bank has said there was no rea­son for the cur­rency to fall fur­ther, but in­vestors are also brac­ing for fur­ther in­ter­est rate cuts. "It will be all eyes on the Chi­nese author­i­ties for any fur­ther pol­icy sup­port steps, along­side the Peo­ple's Bank of China yuan fix­ings and trad­ing swings," an­a­lysts at Investec Eco­nom­ics said in a note to clients.

China is also widely ex­pected to re­lax re­serve re­quire­ments ra­tios for its banks again in the com­ing months, a mea­sure in­tended to spur lend­ing by re­duc­ing the cash they need to hold. It is try­ing to keep its econ­omy on course to grow 7 per­cent in 2015 - its slow­est pace in a quar­ter of a cen­tury. "We con­tinue to ex­pect a to­tal of 100 ba­sis points of re­serve re­quire­ment ra­tio cuts by end-2015, with the first cut likely to take place within the next two weeks," econ­o­mists at Stan­dard Char­tered said. The cash re­serves ra­tio has al­ready been cut three times this year.

By the end of next week at­ten­tion may shift away to the Rocky Moun­tains, where pol­i­cy­mak­ers are due to gather from Aug. 27-29 for the Fed's con­fer­ence of cen­tral bankers, fi­nance min­is­ters, aca­demics and fi­nan­cial mar­ket par­tic­i­pants in Jack­son Hole. Fed chair Janet Yellen is not ex­pected to at­tend, rais­ing the prospect that other Fed of­fi­cials may be more tight-lipped about the like­li­hood of the first rate in­crease in al­most a decade, some an­a­lysts said. The prospect of an in­crease as soon as Septem­ber re­ceded this week as the Fed re­leased min­utes of July meet­ing. They gave no clear sig­nals as to the tim­ing of such a move - which would af­fect mar­kets across the world and could cause more pain for emerg­ing mar­ket as­sets, al­ready be­ing hit by China's woes.

Fed pol­i­cy­mak­ers are still con­cerned about the weak­ness of the global econ­omy, the min­utes showed, but they were also more con­fi­dent about US growth prospects. Fur­ther clues on both mat­ters should be gleaned from data re­leases this week, in­clud­ing sec­ond-quar­ter gross do­mes­tic prod­uct fig­ures for the United States.

Quar­ter-on-quar­ter GDP growth in the pe­riod is ex­pected to be re­vised up­wards to 3.2 per­cent from 2.3 per­cent, ac­cord­ing to a Reuters poll. In the euro zone, in­vestors will also be look­ing at an Ger­man eco­nomic sen­ti­ment sur­vey due on Tues­day for a bet­ter idea of the scope of the bloc's re­cov­ery.

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