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Friday, 15 July 2016
Seven Charts With Economic And Monetary Message
U.S. stock markets are hitting new highs. One could argue that stocks, at least in the U.S., are climbing a wall of worry, which probably makes sense. But arguing that there is anything to worry about does not make any sense at all.
Behind the scenes, we see too many indicators flashing red, and prudent investors should not ignore those data points.
In this article, we present 7 charts which reflect the concerning state of economic, financial and monetary conditions. Chart courtesy: Saxo Bank.
The Financial Stress Index by the Federal Reserve Bank of Cleveland is an indicator of financial stability. The index is composed by credit indicators, forex and equity data, as well as interbanking spreads and rates. This indicator is in a strong uptrend, testing its 2011 highs, and moving towards 2008 crash levels. Note how this indicator peaked way before the stock market crash in 2008/9.
China’s economy grew 6.7 per cent in the second quarter, unchanged from the previous three-month period, as a buoyant property market and government stimulus boosted demand for factory output. The latest quarterly real growth figure is slightly ahead of the 6.6 per cent pace that economists expected, according to a Reuters poll. China’s legislature approved a full-year growth target of 6.5 to 7 per cent for 2016. China’s economy grew 6.9 per cent in 2015. Yet downward pressure on the economy remains significant. Fixed-asset investment — which includes both infrastructure and manufacturing investment — grew at 9 per cent, its slowest pace since 2000 in the first six months and down from 9.6 per cent in the year to May. “Growth has stabilised, and we also see that the structure is improving. Investment growth is coming down, which is a correction for the over-investment of the past seven years,” said Zhu Haibin, chief China economist at JPMorgan in Hong Kong. “But investment growth is much stronger in new sectors such as high tech and infrastructure. In the overcapacity sectors like steel and coal mining, we see negative growth.”
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