Weekly Intelligence Report – Rate resets, fiscal fascination and China’s debt

24 May 2016

Shifting perceptions of central bank policy, and reaction functions, have explained many of the moves in global markets during this post Great Financial Crisis era. Understanding central banks has been a critical success factor in anticipating swings in risk appetite, and much of our commentary, in previous Weekly Intelligence Reports, and in other pieces, have been devoted to the art and science of central bank watching. In the first of this week’s articles, Steve Friedman takes a more measured look at the recent market reaction to the publication last week of unexpectedly hawkish sounding minutes of the April Federal Open Market Committee meeting.

The second of our pieces focuses on fiscal, rather than monetary policy. Richard Barwell analyses the efficacy of fiscal policy in an over-indebted world, and argues that many developed market countries still have room to ease fiscal policy further, and topically, takes a closer look at Japan’s room for manoeuvre.

Lastly, Chi Lo tackles the question of whether China’s debt levels are excessive, and finds fewer causes for alarm than many international commentators. Whilst in no way giving China’s debt levels a clean bill of health, he does argue that structural differences in the composition of debt ownership should mitigate many of our worst concerns.

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