How much, if anything, has changed?
US growth on track: The labor market continues to heal, with the latest payrolls number near 300,000. USbanks have shown four straight months of core loan growth. And despite softer manufacturing survey data,the more significant non-manufacturing figures look firm.
Eurozone’s ongoing uptrend: The latest PMIs for the Eurozone confirmed strengthening real activity, broadbased across countries. Better lending growth and continued loose monetary settings suggest credit recovery for the bloc.
China’s slowdown still manageable: China is on a well-flagged path to steadier, more consumption-ledgrowth that we do not expect to result in a proverbial “hard landing.” Its latest commitment to a larger fiscal deficit close to 3% of GDP should smooth the growth transition.
So what’s different?
Chinese policy shifts: China’s onshore renminbi has weakened modestly but persistently against the US dollar. A “circuit breaker” to halt equity price declines was triggered twice before being abandoned. Despite China’s efforts to clarify its intentions, global markets see its forays into freer markets as uncertain.
Renewed oil price declines: Second-order spillovers from oil hovering near USD 30/barrel have heightenedinvestor uncertainty and price swings rather than boosting developed market sentiment and consumption.
Perception of central banks: December’s initial interest rate hike from the US Federal Reserve, and somedisappointment regarding the European Central Bank’s stimulus last year, led the market to question the ability of central banks to minimize price volatility.