China has the tools – don’t panic – Danske

FXStreet (Guatemala) – Analysts at danske Bank explained that when it comes to China, they believe it has the tools needed to avoid a hard landing and orchestrate a slow recovery in H2.

Key Quotes:

“The moderate easing shows it is likely to move gradually and evaluate as it goes along. China has an aversion to big stimulus plans, as it has its eyes focused on a continued structural deleveraging and focuses on economic and financial reforms.”

“However, it is unlikely it will allow a further deterioration of the economy without stepping harder on the gas, as this could become a threat to social stability and weaken the Chinese leadership. Regarding oil prices, the short term call is tough, as it depends on how big the oil glut is in the short term. However, we believe prices are far below marginal production costs now and that a moderate recovery in China will lead to a very gradual rise in oil prices over coming quarters.”

“If the above falls into place, we believe it is enough to stabilise the situation. A joker is the looming lift-off from the Fed. If markets calm down, the Fed is on track to raise rates – our forecast is that this will happen in December. This will be another test of the fragility of EM.”

Analysts at danske Bank explained that when it comes to China, they believe it has the tools needed to avoid a hard landing and orchestrate a slow recovery in H2.

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