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China sneezes and central banks need to cut - Rabobank

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Jan 15, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Guatemala) - Analysts at Rabobank explained that the degree of volatility in asset markets so far this year has taken many investors by surprise.

    Key Quotes:

    "Most of the causes of the mass retrenchment from risky assets are an extension of the themes that had dominated the spotlight in the second half of last year. Slowing growth in China and worries that the market interventions used by the Chinese authorities had become part of the problem had already been widely discussed last year."

    "However, with uncertainties surrounding Chinese growth amplified by fears of CNY depreciation and doubts as to impact of higher US rates on the global economy, increasing quantities of investors have sought out the safety of safe havens. Consequently the JPY, EUR, CHF and USD have found support. Commodity currencies remain at the bottom of the currency performance table in the year so far with supply gluts in commodities ranging from oil to iron ore stubbornly refusing to rebalance."

    "For many commodity producing countries in the Emerging Market space, currency weakness has triggered an unwelcome rise in inflationary pressures meaning some central banks, including the Central Bank of Brazil and the SARB, face a nasty combination of higher prices and slowing growth this year. The G10 commodity producers have avoided stagflation due to greater economic diversity and hang-overs from several years of overvalued currencies."

    Insofar as low inflation remains a common theme for much of the world, several central banks have left open the risk of further easing in 2016. If China allows its currency to depreciate as we expect, the risk of further easing from the central banks for many of its trading partners will increase. It may be over five years since the terms ‘currency wars ‘ was coined by Guido Mantega, Brazil’s then Finance Minister, but 2016 promises to bring an fresh chapter due to late arrival by China."
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