Three large downside risks continue to undermine confidence in global asset markets: the eurozone crisis, fading growth in the US and a possible hard landing in China. Of these, the last is the hardest to read, because of doubts about the accuracy of economic data and the impenetrability of the true intentions of policy makers (at least to this outside observer). Nevertheless, investors are forced to come to a view on inflexions in the Chinese cycle, because global markets have become extremely sensitive to them.
The Chinese data for economic activity which were published last week seem consistent with a softish landing rather than anything worse. While there is no definitive evidence yet of a turning point in the cycle, downward momentum has abated. The authorities are once again relying on investment spending to dig the economy out of a hole. This should work in the period immediately ahead, but the longer term consequences could be less benign.