China perhaps the only light at the end of the tunnel

With China accounting for a third of global growth the focus is likely to increasingly turn to the stance of Chinese liquidity policy. In the absence of an easing in Chinese liquidity, we struggle to see how the outlook for the next year or so is substantively different from a rinse-and-repeat of the first half of 2018 – volatile asset markets, sentiment showing heightened sensitivity to geopolitical and trade risks, and economic growth that is reasonable but never seems to quite reach lift-off.

An easing in China would help:

• boost the most cyclical sectors of the Chinese economy, including housing;
• contribute to stronger money supply growth; and
• strengthen inflation and commodity prices.

Easing would likely also have global implications by: 

• helping global growth;
• adding some reflationary impulse to markets via stronger demand and higher commodity prices; and
• benefitting risk appetite and, potentially, risk-sensitive assets such as the AUD and those in Asia.

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