China rides to the rescue?

The headlines from last week sounded dire. It began when China’s May economic activity report was disappointing, with industrial production, retail sales, and fixed-asset investment missing market expectations. 

Then the Federal Reserve took an unexpected hawkish turn. The statement from the FOMC meeting acknowledged that downside risks from the pandemic were receding as vaccination rates rose. It raised the 2021 inflation forecast dramatically, shaded down next year's unemployment rate, and projected two rate hikes in 2023 compared to the previous forecast of no rate hikes. As well, a taper of its quantitative easing program is on the horizon.

Collapsing global trade and growth. Rising interest rates. It sounds like the start of a major risk-off episode. My own reading of cross-asset market signals comes to a different conclusion. China's slowdown is stabilizing, which may serve to put a floor on global risk appetite and equity prices.

The full post can be found here.