Global Economic Data | China Focus
"Intellectual capital will always trump financial capital." - Paul Tudor Jones Macro markets keep their focus on the global picture of economic growth, inflation, and interventionism. While China is set for a slew of economic data early in the week, U.S. markets will pay attention to housing data, the Fed's Beige Book, and jobless claims.
Initial jobless claims have been trending below average on a weekly basis, reiterating a labor market that's not as bad as the last nonfarm payrolls report may suggest (check out our last Top Three Things article for more on jobs.)
MBA Mortgage new home purchase applications have trended weak while builder applications are strong.
As commodity prices are surging across the board, China tries to mitigate the dramatic rise in input costs via the release of strategic commodity reserves. Former Glencore CEO, Ivan Glasenberg, put it this way: "They will have to restock." The Asian nation is coming around the idea that energy transitions are processes over decades with China's State Council-run Economic Daily writing "Green transformation cannot be "a sharp turn" ". The article stresses the importance of optimizing coal production capacity as long as green solutions aren't readily available amidst a continued industrialization of the nation. Rolling lockdowns, power outages, and surging commodity prices have ultimately led to extreme inflation and low confidence by purchasing managers.
China's Economic Calendar This Week
Don't be mistaken, China's government is carefully navigating economic waters here and it would be naive to assume a lack of planning.
In many ways, the government's actions are in line with what had been communicated in China's 14th 5 year plan as well as its long term goals for 2035.
Quality over quantity of growth
Building a sustainable technology and manufacturing economy
Accelerating low-carbon output to help achieve 2030/2060 goals
Achieving "common prosperity" through urbanization strategies
Liberalization of the business environment
Elevating China's leadership on regional and global economic governance
Managing great-power rivalry with the United States
Outline of the People's Republic of China 14th Five-Year Plan for National Economic and Social Development and Long-Range Objectives for 2035 - Center for Security and Emerging Technology, Georgetown
China's credit impulse has been slowing for quite a while now and it would not come as a surprise to see accommodative state intervention in the run-up to the Beijing Olympics where Xi Jinping will present the nation to the world.
Onto some economic data from the west:
U.S. Economic Data:
Germany Economic Data:
European energy markets shook by the drastic increase in energy prices.
Natural Gas, Coal and Global Energy - Blue Line Futures
"Germany's Federal Network Agency - which regulates the country's electricity, gas, telecommunications, post and railway sectors - has until early January to come up with a recommendation on whether or not it will certify the pipeline that runs from Russia to Germany under the Baltic Sea." - Reuters
Source: Flex LNG
UK Economic Data:
The energy markets squeeze has been similar across Europe, but very significant in the UK.
"UK to put nuclear power at heart of net zero emissions strategy" - Financial Times
When capital gets reallocated, external shocks happen, and/or state intervention comes into play, long-term movements set in motion. Those processes happen over the course of years, yet markets trade on a daily basis.
George Soros' Reflexivity framework is a rather interesting mental model in that regard and we hope it helps in understanding prices vs. underlying fundamentals.
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How Significant Is The Shift From Hydrocarbons?
In prior editions, we talked about the reallocation of time and money spent in terms of the U.S. housing market, where spending has shifted from commercial to residential. Similarly, spending in the energy markets has shifted from fossil fuels to renewables. When the world's economies have to take part in a single idea/transition, the flaws of coordination and action come to surface.
Source: Oil and Gas Investment in the New Risk Environment - BCG, December 10, 2020
Source: Fitch Solutions
North America centric CAPEX cuts for the long-term