Thursday, November 11, 2010

Paper Dragon printing paper...

the risks here were fairly straightforward. China stuck between the proverbial rock and hard place, and the is caught in intertemporal public unrest management mode.

Chinese inflation sped to a 25-month high in October and bank lending blew past expectations, highlighting the challenge faced by Beijing as it battles to keep a lid on price pressures.

The data left little doubt about why the central bank raised reserve
requirements this week and pointed to further tightening steps, from
rate rises to yuan appreciation, in coming months.

Markets have already moved to factor in tighter policy with five-year Chinese government bond yields rising sharply in expectations of a rate rise before the end of 2010.

However, while world markets swooned in October on fears that Chinese tightening would dent demand, evidence of the economy’s continued strength and a belief inflation might drive investors to hard assets provided a lift to commodity prices globally.

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