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China, Commodities, and the Global Growth Narrative

From the global macro perspective there are several key drivers and motivational narratives which can be seen at work in the financial markets on a day to day basis. Being better equipped to discern these key narratives, along with the kinds of patterns in cross asset movements which have been our focus, will provide valuable clues as to the current predilection of the overall market with respect to its appetite or aversion to macro risk. Amongst the narratives which most contribute to market perceptions, and manifestations of the prevailing risk on/risk off sentiment, are pronouncements by respected China analysts and pundits regarding the outlook for the global economy based on the growth dynamics within the world’s most populous nation. Given the anemic recovery in the USA since the global financial crisis, the seemingly endless mishaps in the Eurozone, and the concerns about the debt overhang and associated de-leveraging of the banking system, a boost for the global growth bulls and a rally in risk assets can often be attributed to positive economic news regarding China. FT Alphaville has somewhat cynically referred to this phenomenon as “the world’s biggest put option – the China growth story.” [1]

Obviously in a single chapter of a book, which is covering a large enough terrain, there will be need for selective brevity in consideration of the vital macro-economic characteristics of the world’s second largest economy. ...

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