Thursday, April 12, 2012

China stimulus kicks into gear

As China's monetary policy committee changed its language from "maintaining" last year to "stable and appropriate increase" this year, the policy of easing has become more visible. We started with this official statement earlier in the year:
China's government statement: "We will employ a full range of monetary policy tools, appropriately adjust the supply and demand of money and credit, and maintain proper growth of financing from nongovernment sources. The broad money supply [M2 - which China is now targeting] is projected to increase by 14%. "
Signs of easing were already in place back in January. But more recently the PBOC likely realized that credit conditions were too tight and there is a significant risk of a "hard landing". With inflation measures coming in stable to lower, they started injecting incremental liquidity into the banking system, easing availability of credit. In addition the China Banking Regulatory Commission lowered the loan-to-deposit ratio requirements for the larger banks. The new loan volume in March came in strong and materially above expectations.

Source: Credit Suisse (click to enlarge)

US equities are up today in spite of the of the abysmal US initial jobless claims. The market is looking for incremental stimulus no matter where it comes from. It hasn't been getting it from the Fed, but stimulus from China seems to be just as good.
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