Generally I have seen a positive reactions to the China reopening news in financial publications and finance subreddits but little discussion on how the reopening is almost certainly a significant factor the Fed is thinking about.
https://www.bloomberg.com/news/articles/2022-12-15/bridgewater-s-jensen-says-china-reopening-adds-risk-to-us-and-europe-growth?
” The Bridgewater co-chief investment officer said the shutdowns in China have been a “blessing” for the rest of the world by slowing the second-largest economy.
“It’s been such a disinflationary force into a global inflation,” he said on Bloomberg TV Thursday. “China opening and the effect that’s going to have on commodity prices, in competing for raw materials in the world, while the US and Europe are entering recession, will probably make the central banking dilemma worse.”
And he isn't wrong. For the first 10 months of 2022 China crude demand was down an average-1.8 million barrel/day. While China crude demand was down, its refineries were still operating, thus creating artificial new supply in processed fuels like diesel and kerosene. This is reflected in other commodities like palm oil where China is the second largest importer (imports fell by 44% year-on-year), and LNG. The LNG situation is pretty interesting, China is the largest LNG importer, and demand is set to fall 1% this year. They are not participating in the LNG spot market this winter which is good news for Europe which basically gets all their lng right now from the spot market.
Either way, its a pretty safe assumption that any supply chain smoothing out that ending zero covid brings will be canceled out by China's dramatic return to the global commodity markets. The recent December Politburo meeting should have you a little more worried too. For the first time ever ” 扩大内需 ” ( means expanding domestic demand) was emphasized more then the traditional supply side investment rhetoric. The readout also mentions ” We should focus on expanding domestic demand and give full play to the foundational role of consumption and the key role of investment. ” In my view this means that western style stimulus checks are an idea China's legislators are considering (source here in Chinese http://www.news.cn/politics/leaders/2022-12/07/c_1129188720.htm)
Either way a recovering Chinese economy, particularly if the recovery comes very fast, will put a lot of pressure on central banks. Important to remember that 54% of China's GDP comes from domestic consumption compared to 27% from manufacturing. It will definitely increase the period of rate hikes needed to get to the Fed's desired inflation number.
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