Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the new tariffs levied by President Trump against $200 billion in Chinese goods. The latest trade salvo goes beyond market expectations as the 10% tariff is set to rise to 25% as of January 1 should Beijing retaliate.
Article / 27 April 2016 at 9:55 GMT

Daily Shot: 'Beijing bounce' on borrowed time? Team / Saxo Bank
  • Chinese data show stimulus doing its job
  • How far can Beijing go before addressting fundamentals?
  • Commodities futures jump as gov't money floods market

By Walter Kurtz*

Today we take a look at China where the government stimulus is making its way through the economy. We can see China's budget deficit worsening as the government finances various new projects. 

The "stimulus effect" is visible in container throughput, power consumption, and excavator sales while the People's Bank of China-orchestrated lower interest rates are helping home sales.

Home sales
But nowhere is the stimulus effort more visible than in commodity futures, which have been hit by frenzied speculation. Below is Credit Suisse commenting on the topic.  

Here we have the aluminum futures in Shanghai for example.

In fact, China's regulators have become concerned about this spike in activity and imposed some curbs. 


Iron ore
The big question now is how long will Bejing continue with this stimulus? After all, these investments by the government don't resolve any fundamental issues in China's economy, kicking the can down the road instead. In fact, this worsens the moral hazard problem and makes the nation's economy even more dependent on investment. A number of economists believe the program will be short-lived for precisely this reason.

Here is a comment from Merrill Lynch.

Merrill Lynch
Morgan Stanley's view is consistent with the comments above.
Morgan Stanley
In other developments in China, the short-term wealth management products (WMPs) yield is highly elevated versus money market rates. Note that these products invest in longer-dated corporate bonds while "guaranteeing" a fixed return on a short-term product (three-months for example) – a significant asset-liability mismatch. 

The way the program stays afloat is by having new investors coming in to replace those who redeem. This feels just a bit "Ponzi-ish". 

The mainland's fake imports from Hong Kong have been elevated as capital moved offshore.  

Natixis sees the fake trade volume between HK and mainland "pause" for a while as the rate differential between CNY (the onshore yuan) and CNH (the offshore yuan) shrinks. 

Trade volume
 — Edited by Michael McKenna
* Walter Kurtz is an alias
** This is an abridged version of the Daily Shot. To subscribe to the full version, link to the Daily Shot and select the appropriate command. E-mail addresses are never shared with anyone.


The Saxo Bank Group entities each provide execution-only service and access to permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on or as a result of the use of the Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail