Santa Zvaigzne-Sproge (Conotoxia) answered some questions regarding recent macroeconomic events. FXMAG.COM asked Santa about China's GDP, Eurozone inflation and Bank of Japan.
China’s GDP has suffered considerably in 2022 due to the Covid-19 pandemic and the zero-Covid policy in its aftermath pushing the country’s growth below its target of 5.5%. The Chinese economy may not return to 2-digit growth numbers in the foreseeable future but returning to its target growth rate may be entirely plausible.
The People’s Bank of China left the one-year MLF rate unchanged at 2.75% and injected less money into the economy as expected, meaning that the officials may not expect the need for more aggressive support to the economy at this moment.
Besides China’s GDP, it may be useful to keep an eye on the developments within its tech sector. China’s government has been targeting all major technology companies with new regulations since 2020 with an aim to curb the country’s private enterprises. There are signs that the Chinese government may be changing its policy in order to boost growth this year. For example, last week, Alibaba’s affiliate company Ant group finally received long-awaited approval for capital expansion of its key consumer finance unit.
Furthermore, the US ban on semiconductor chips and chipmaking devices export to China has motivated it to expand its national chipmaking companies, such as SMIC, offering various support packages to the industry. Russian oil’s recoil from the EU boosted its exports to China, allowing it to purchase its oil at a considerable discount. Overall, once China takes hold of the pandemic, it may be on a favorable path for further growth.
Also if inflation is reported below 10% on Wednesday, the ECB may be hesitant to pivot its current policy of economic tightening. With the key rate of 2%, ECB may still have plenty of room for further rate hikes (possibly even 50bp), in addition to the asset purchase program commencing in March 2023.
It is reasonable to assume that the Bank of Japan may take some steps in the direction of tightening its monetary policy. However, considering BoJ’s general dovish stance, widening its yield curve tolerance band may be a more plausible (and softer) scenario in comparison to abandoning it altogether.
The surging yen for the last couple of months deepens the already large trade deficit by hurting exports and boosting imports. It is important to acknowledge that any type of action recognized as a tightening of the monetary policy may encourage further appreciation of the Japanese Yen and hurt its stocks.
We may expect more perceptible changes in the BoJ’s monetary policy in the second quarter of 2023 once a new governor is elected.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement, or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76,41% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
