Via a note from JP Morgan on the China stimulus proposals that hit the headlines on Tuesday:
The US has been the anchor for global growth, but a China reboot will also benefit the globeIt may create another inflationary pressure, so keep an eye on commodities and bond yields over the coming weeks
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JPM highlights in the note that global growth has gained an additional boost from China, a factor that had been absent in recent years. This development significantly lowers the risk of a recession and is positive for the markets.
However, they also warn of a potential risk of reinflation.
Its difficult to disagree with this as a risk. China’s stimulus could drive up commodity prices, which may contribute to a renewal of inflation pressure, at least to some extent in headline figures. For the US, core inflation should continue to drip lower given shelter costs decreasing.
This article was written by Eamonn Sheridan at www.forexlive.com.
