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China's Slowdown to Dictate Central Banks Actions

Global asset markets are likely to stay supported by the money printing by the central banks from around the world. The ECB has already hinted on expanding the size of the QE and Japan also stands ready to do more of its own. Investors are already putting high odds on a US Fed lift off next week, but the US may not even lift off in December if China stumbles.

For the ECB and BoJ, China's slowdown remains even more of a worry because any further slowdown will throw the recovery off course and all the work that has been done to this point will be wasted. Therefore, the ECB and Japan see the days back to prosperity just around the corner and for them a bit more money printing can do the job, plus inflation is no way closer to target and this makes their job easier.

China keeps reiterating that there is no hard landing which exactly points to the fact that China is worrying about the market and is increasingly concerned on a major slowdown in the Chinese economy. Therefore, economic data out of China will remain crucial to the fate of global economies, especially the ones heavily dependent on it, such as Australia, New Zealand, and South Africa.  For developed economies: the key fear is China exporting deflation to these economies, which may cause companies to stop investing, hiring and producing to kick into motion a downward spiral of weakening demand and supply around the globe. 

China has recently announced plans to up fiscal spending, and with its massive reserves it can keep on going. For now, China will do everything in its might to fight slowing demand and production even if it means over heating its economy. Even if China’s economy is to go down it will go down with a bang not a whimper. But even if there is a hard landing, it will be not be until next year we hear a bang.