Anticipated Timing for Recovery in Chinese Equity Markets
The US economy and stock markets are currently navigating a complex and uncertain phase, with several key factors shaping the landscape.
Consumer spending, a crucial driver of economic growth, has been disappointing despite significant additional savings. The rapid spread of the Delta variant of the coronavirus is unlikely to improve consumer sentiment, further challenging the recovery.
The labor market, however, is showing signs of normalisation, with some cases showing a higher demand for labour than supply. Yet, this situation could lead to a longer-lasting inflation due to wage increases, a concern that has been heightened by the risk of a slowdown in growth combined with inflationary pressures, akin to "Stagflation 2.0."
The Federal Reserve, under the leadership of Jerome Powell, is approaching a critical juncture. With key indicators normalising, the moment of "casus belli" - the time to act - is drawing near. The Fed is expected to gradually reduce monthly purchases of government bonds before raising interest rates, a move known as tapering. This tightening of monetary policy, happening in small steps, is an unfavorable and newly calculated factor that could halt the rally of stock markets.
Interest rates in the US have decreased due to the complex situation in the economy, but this did not dampen enthusiasm on stock markets. However, the tapering of monetary policy could begin later this year, marking the beginning of a new phase of market interpretation.
Meanwhile, the performance of Chinese growth stocks may reverse compared to Western markets, at least for a time. China is far ahead of the USA and Europe in its economic cycle, and its stock markets have already navigated the delicate phase in their own way. However, the consequences of the phase, exacerbated by a spectacular tightening of regulatory measures, have taken a toll on the performance of Chinese stock markets.
In the US, the originally planned timeline for the return to normal operations in the services sector has been called into question. The first social support measures introduced during the crisis peak are gradually being phased out, adding to the economic uncertainties.
Growth prospects have been almost universally revised downwards for the coming months in the US. Yet, despite these challenges, the US economy and stock markets continue to show resilience, adapting and evolving in response to the ever-changing landscape.
Key figures in China, including Premier Li Qiang, who oversees economic and financial policy, and the State Council's Financial Stability and Development Committee chaired by Vice Premier He Lifeng, are playing a significant role in shaping the Chinese stock market's trajectory. The China Securities Regulatory Commission (CSRC) under Chairman Zhang Yujun, which regulates the stock market and implements reforms to boost stability and growth, also holds considerable influence.
As we move forward, it's clear that the US economy and stock markets will continue to face challenges, but they also demonstrate a remarkable ability to adapt and recover. The coming months will be critical, and the markets will be closely watching key indicators and policy decisions for signs of the next phase in this ongoing journey.
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