The talk of the town at the moment is China’s hard landing. “What?” I hear you say. “Isn’t this the same ‘China hard landing’ that we’ve heard about every year now since 2008?” Yep, the very same. You can’t keep a good fear story down, people, and this one’s a doozy – and it’s good-bad news for Australia.
It’s great because if China is slowing hard, the Aussie dollar will barely buy 90 Zimbabwean cents, let alone 90 US cents (the Australian dollar is down a big figure since Friday afternoon to buy 0.9068 US cents). It's an outcome the growth girls and boys around the country have been trying to achieve for years.
Yet this is bad news because it actually makes things more expensive for the majority, destroys consumer and business confidence and makes things such as petrol – a crucial national input – much more expensive. Actually it’s bad news for exporters as well, because commodity prices are going to tank if it’s true. So it’s bad-bad news. But at least the Aussie dollar will be weaker, right?
Now. We actually get China’s GDP numbers today and this will likely set the tone for the early part of the week. We come off the back of a fairly decent week last week, where the All Ords was up about 2.9 per cent so whether those gains are held will depend on today. The consensus is that China’s GDP growth was about 7.7 per cent in the June quarter. Industrial production, also out, is expected to surge 9.1 per cent, fixed investment up around 20 per cent and consumer spending nearly 13 per cent.
I’ll be upfront in stating there is no credible way growth figures like that can be spun into a hard landing or even soft landing script. That kind of rhetoric is just too ridiculous to take seriously. The Chinese economy is surging – full stop.
As I’ve mentioned before, I think economists often forget that China’s economy is four times or more the size it was pre-GFC. That means even with slower growth rates now, the force, momentum, however you want to think of it that the Chinese economy provides to the rest of the globe is much greater now than previously. Everything else is noise and reflective of the culture of fear we now live in.
Now, it’s rare that the actual numbers released vary too much from the consensus, so it’s not that we’re likely to get a major surprise from the figures. What will set the tone is the drama surrounding the numbers. If it comes in at 7.6 per cent for instance, will we see the 24-hour news special on China’s coming depression? Probably. That’s what will set the tone. For what it’s worth, Chinese money statistics out on Friday still show the economy growing at a rapid clip – up 14 per cent year-on-year. Yet what got the attention of analysts was that it has slowed down from 16 per cent.
For Australia we get motor vehicle sales today and the Reserve Bank’s minutes on Tuesday. So not much, and I don’t think we’ll learn anything we don’t already know in the minutes. We know that the board stands ready to cut as it wants a weaker currency still (to rebalance the economy), although we don’t know the target. All we know is that they think it’s too high.
That the Reserve Bank board is misguided in its policy views I think is best captured in the rising petrol price. This is policy error pure and simple and it’s getting worse. Confidence has been destroyed and already petrol is expected to rise up to $1.70 soonish, and an even weaker currency could see that get to $1.80 or more.
Looking elsewhere abroad, there is quite a bit out of the US. Data like retail sales, housing starts, industrial production, the Beige book and the Philly Fed index will be closely watched. As will Fed Chairman Ben Bernanke’s testimony to Congress this week (Thursday and Friday, Australian time). Talking to Congress is always tough and many in Congress are very hostile to QE. Already Bernanke has been criticised for sending mixed messages to the market so this is something to watch.
Likely to be a busy week then – enjoy!
Adam Carr is a leading market economist.
Follow @AdamCarrEcon on Twitter.