Investment Newsletter – February 2023
China played down the cancellation of a visit by US Secretary of State Antony Blinken after a large Chinese balloon suspected of conducting surveillance on US military sites roiled diplomatic relations, saying that neither side had formally announced any such plan. Back in 22 January 2023, Blinken was set to visit Beijing from Feb. 5 to 6, a US official said, in the first trip by a US secretary of state to the rising Asian power since October 2018. The trip was decided after US President Joe Biden and Chinese President Xi Jinping in November 2022 held talks in Bali, Indonesia, on wide-ranging friction between the world’s two largest economic powers. However, Blinken voiced alarm over Taiwan, pointing to Beijing’s growing efforts to isolate the nation and the major military exercises it carried out near it in August.
China hasn’t unveiled details of its gold purchases since 2019, with the exception of the last three months. During the time it did report figures, though, the PBOC amassed 1,448 tonnes since 2002. It’s expected that China will continue its gold-buying spree throughout 2023, in an effort to bolster the yuan’s international strength and challenge the US dollar’s dominance. In fact, the Chinese regime last year even went as far as to convince Middle Eastern nations to accept its currency in lieu of the greenback for crude imports. The de- dollarization trend, which gained momentum in wake of Russia’s invasion of Ukraine, is expected to continue as major central banks increase their gold reserves. Data from the World Gold Council showed that central banks purchased a combined 1,136 tonnes of the precious metal last year, the largest amount since 1967.
Total RMB loans surprised the market to the upside mainly on stronger corporate loans, where the growth accelerated to 23.7% month-over-month annualized in January 2023 from 16.9% in December 2022, although short-term corporate loans grew faster than medium to long term loans. Household loan growth slowed in contrast – medium to long term loans to households (mostly mortgages) contracted in January vs December last year amid weak property transactions and early repayment of mortgages. Total social financing and M2 beat expectations as well on the back of stronger loan growth. Bottom line, the burst higher in credit will lead to an even more powerful bounce in Chinese stocks in the near term.
Tight monetary policy is “unequivocally” slowing the US economy, allowing the Federal Reserve to move “more deliberately” with any further interest rate increases, Richmond Fed President Thomas Barkin said on 9 February 2023. The core question for this year is inflation calming, which Barkin argued that the decline so far had been “distorted” by some falling goods prices. Barkin did not pinpoint his own sense of where the Fed might pause ongoing hikes to its benchmark overnight interest rate, a level his colleagues projected in December was likely to be in the 5.00%-5.25% range.
The US unemployment rate hit more than a 53-1/2-year low of 3.4% in January 2023, pointing to a stubbornly tight labour market, and raising a potential concern for Fed officials as they fight inflation. Fed Chair Powell indicated that if the US job market strengthens further in the coming months or inflation readings accelerate, the Fed might have to raise its benchmark interest rate higher than it now projects.
