Gold traders factor in Fed easing

In The Lead: “Chinese Take Away”

China and its emergent economic slowdown recaptured the weekend’s news headlines, now that the European situation and the Fed are considered baked-in ingredients in the markets’ cake. Premier Wen recently remarked that the headwinds being faced by the world’s second largest economy are nothing trivial and that a lot of work needs to be done to restore targeted growth patterns. A recently conducted Bloomberg News poll reveals that global investors are fast losing their confidence in China and that they expect that nation to be among the bottom-performing ones in the coming year (with the US being seen as the best).

Rewind to 2009: Investors worldwide had but one economic darling to sing their praises over – China. However, the Chinese leadership’s lack of success in controlling inflation, curbing the runaway property market, and the impact of a fast-shrinking EU export market have yielded a situation where 33% of poll respondents believe that a hard runway incident is in store for China. ING Senior Economist Tim Condon says that not only will 2012 be a “write-off” year for China but that his firm expects a “hard landing this year.”

Mr. Condon also cautions that, if and when any monetary easing by China’s central bank does come about, the country’s leadership must be extra careful not the have the money end up in the hands of corrupt officials and thus in shoddy buildings, crooked railway lines, about-to-collapse bridges, etc. Such developments could not come at a more inauspicious time; the current leadership hands over the reins to incoming teams next month. As such, hardly anyone expects radical moves or programs to be offered by the outgoing group before the handing over of the relay baton.

In the latest news from the Chinese economic front, the revelation that imports fell by 2.6% from one year ago levels sent additional shivers through the overnight markets. The figures come on the heels of August metrics that showed factory output declining to a three-year low. China’s manufacturing is contracting at the fastest pace since March of 2009 at this point. At this juncture, it is not thought that a projection for a Chinese GDP growth level at the 7.5% level for the year is something outlandish or unfathomable.

Do bear in mind that China has not been growing at that level since around 1990. President Hu Jintao remarked yesterday that subpar exports and uneven domestic growth present persistent challenges to his country’s economy. No mention was made of the inflation rate rising to 2% in the latest reported period; a development that makes rate-cutting by the PBOC a tad…tricky at this time. The take-away from the weekend’s news: China was sweet but it might be turning…sour.

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