Asia wrap: Is it time to sacrifice the yuan?
|More of an opinion piece that we think could warrant some attention down the line.
Small open G-10 economy central banks, like the Bank of Canada and the Reserve Bank of Australia, are not particularly forerunners regarding Fed policy. And given the global recessionary landscape, particularly a potential disinflationary wave emanating from China, it is questionable if now is the time for central banks to tighten the screws.
Hard economic data for the US economy has been sending mixed signals. And worryingly, at a time when the Fed is searching for clues that demand growth is slowing below potential, this headline volatility has clouded the underlying picture of the US economy, making the fine-tuning call of "sufficiently restrictive" little more than a crap shot heading into next weeks Fed meeting.
In Asia, it's increasingly difficult to be bullish on China; it's an erratic investment world with the greening of the landscape and reluctance to mine. The property market is no longer the driver, and low birth rates and fiscal stresses leave everyone wondering who is left to pay taxes. The burdening debt load and fears of default make it virtually impossible for the government to lather the economy in a deluge of fiscal soothing balm. And" policy light" interventions by lowering property commissions or asking banks to cut deposit rates are not persuasive enough.
So what’s left? Ultimately China may have to sacrifice the currency, and with it comes a big wave of disinflation and pressure on virtually everything, including the bellwether copper and oil.
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