On October 5, financial adviser Atsushi Kawakami (pictured) held a financial online seminar on trends and analysis of the world economy. In his speech, the Chinese economy may decline due to the worsening business sentiment, the slowdown of the consumer price index, the slow growth of automobile sales, and the impact of the Evergrande Group, which is in danger of bankruptcy. "


After the spread of the new coronavirus pandemic, China's business sentiment index began to recede after leveling off from a rapid recovery. The consumer price index slowed to 0.8% year-on-year in August. In addition, the Purchasing Managers' Index (PMI) indicates that "the manufacturing industry is getting worse" (Mr. Kawakami).


Retail sales were high year-on-year, but remained flat in China. Investment trends are flat due to the impact of the Evergrande Group's management crisis. Mr. Kawakami pointed out that "the problem of Evergrande bankruptcy’s possibility will come out in near future."


However, he emphasized that it would not lead to an economy of scale like the one during the 2008 Lehman shock. "If the Lehman shock were to come back, the Hang Seng Index would have fallen even further in the Hong Kong market," he added.


In China, power generation in August remained strong amid poor economic indicators. On the contrary, under the leadership of Xi Jinping, as a result of promoting the introduction of renewable energy by strengthening efforts toward decarbonization, the power supply was partially disrupted due to the enforcement of output restrictions on thermal power generation centered on coal. There is concern that it may cool down.


Based on these points, Mr. Kawakami concluded, "It is better to think that the Chinese economy has passed the peak of the return and is about to enter the adjustment phase."


The one-point comments related to each market are as follows;



【Foreign Exchange】

As for the yen's exchange rate against the dollar, the dollar has strengthened this year even when the dollar weakened from March 2020. Mr. Kawakami pointed out that "the dollar yen will continue to sell yen."


On top of that, "If you look at the level of the yen against the dollar based on purchasing power parity, it is approaching the level of consumer prices. It can be said that the effective exchange rate is also a depreciation of the yen. " That means that the depreciation of the yen will end.



【US Interest Rate】

Mr. Kawakami pointed out that "the rise in 10-year government bond yields due to inflation concerns is nearing its limit." "The three-month and two-year interest rates have barely risen. If it's really inflation, these rates could go up even more. Maybe it's a market-induced inflation concern," he said.




The grain market, especially wheat and corn, has risen significantly, but the grain market is supported by the demand for biofuels made from corn, etc., not due to the movement based on food supply and demand, but due to the rise in crude oil prices.


On the other hand, in the US, shale companies are increasing the number of oil drilling rigs in operation. In addition, OPEC Plus, which is composed of OPEC member and non-member oil producing countries, has recently agreed at a ministerial meeting to postpone a significant increase in production beyond the previous plan, and the crude oil price has been for the first time in about seven years. "The high level of oil and grain market will continue at least for the rest of the year," Kawakami said.




Investors' evaluation of US stocks for long-term innovation in the US is alive and well, and Japanese stocks, which have a sense of cheapness, "Isn't it a great place to buy once lowered?" (Mr. Kawakami). However, he noted that trading volume has subsided in the US stock market. He added, "Prices go up, but volume goes down. A phenomenon similar to Japan's bubble era."



Jiro Arihara

 Global Commodity Watcher