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How China rate hikes bring the Aussies and the commodities down! | Advantage zyaada

MIAMI - JANUARY 16:  Jim Skinner, Vice Chairma...

McDonalds results : Image by Getty Images via @daylife

China controls one third of the world commodities market as a customer and in another one third probably supplies exclusively commodities like rare earths thus even when McDonalds’ great results ( which accrue dividend to China Investment Corporation, a Sovereign fund from the republic) are followed by good performance from Coke in the penultimate/final week of US results season, the markets would find it more significant that the China rate hike made US exports more competitive as the Yuan heads higher, swung the Aussie down ( the AUD swung from 1.018 to 1.013) and concurrently weak German performance meant the Euro USD strengthening trend is likely continuing a start again stop again move.

The world is just swinging throuigh its first quarter of 2011, continuing the US equities uptrend, unable to resolve Egypt, unwilling to try anything too new in China or Europe or even the USA and thus these discussions are unlikely to translate into anything significant immediately. Unless you really believe that weekly 6% food inflation is going to kill China, its 4.6% inflation rate a matter of concern and its rate hike a jump in the continuum. From where I am sitting these are mid stream processes and events that do not disturb the continuum of moves and strategies already discussed here.

It does mean however, that China is a serious customer where the Indian and the Aussie much less any other tiger or commodity economy could try and count in the global firmament. Its almost like China is trying to substitute into mindsets in blanks left by a struggling US much content with the third spot And that probably defines an event and opportunity window in 2011

Also it looks like there would be no deflation anywhere in 2011 as everyone gets used to higher stable inflation. Imagine just strengthening currencies every time there is a local rate hike. There is nothing of concern except immediate liquidity and we are all sitting on good reserves We’ll be happy as long us china maintains inflation rates below 5% through 2011 and that means we do not jump at each rate hike as the one extra..

World map showing inflation, updated for 2009....

Image via Wikipedia

An educating footnote / update from Brazil (Reuters)

Like all things mysterious and aggressively Chinese like the Sun Tsu of War, layers of the China trade initiatives peel off to

Reuters Breaking Views: China from Brazil

expose one of the major drivers f the trade. While Global hegemony and China as an alternate global reserve may be realities, the fickleness of Chinese trade is obvious from the fact that the prime driver of increasing Chinese investments in Brazil have been the high interest rates prevailing in Brazil and thus Chinese money has been the official hot money rather than built on a foundation that requires continuing investment.

Also while Goods ex Brazil in China have grown to $30 billion in 2010 ( seefigures  ) from less than 10 billion, Reuters commentators feel they are actually importing only the cheap kind of goods from china that would be classified as dumping elsewhere. This explanation for the China Brazil axis may simplify the China assessment that ties its growth to aggressive relationships in Europe and Brazil. It does also make a more even playing field for India Aussie and others in Asia. However, it does not deny the writing on the wall that says China is going to be the dominant trade entity and thence the larger currency in a very short time


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