“(1) Co-ordinated fiscal tightening, with fiscal tightening of c1.8% of GDP in the US for 2012: Congress will vote on the report by the Super Committee on the targeted $1.2tn cut in the budget deficit. The report is due on November 23 –yet, various US rate strategists think the real deadline by which a deal has to struck is November 10 (in a way that the proposals can be evaluated by the CBO and put into legislation). So far, there is little sign of agreement between Republicans and Democrats. If they fail to reach a deal, there will be automatic cuts to discretionary spending worth $1.2tn and applied across the board. This would create subpar growth for the economy.
(3) China housing turnover: I am also worried that the preconditions are in place for a sharp fall in Chinese housing starts. According to one commodity analyst, housing starts are running 80% above demand and highlights that property stock per capita in urban areas has risen to 27sqm from 10sqm over the last decade. Housing accounts for 10% of GDP directly, but double this once it is added to the indirect effects. I have highlighted on 29 October’s State Council meeting re-emphasised tightening on property, and urged local governments to strictly implement tightening measures. In order to facilitate property price correction, it plans to further increase land supply for private housing.
Disclaimer: This is just a research piece and not an investment advice. All financial transactions carry a RISK.