Leon Hinde

The Chinese government suggests there’ll be  no hard landing. China’s financial system is generally stable and there are no systemic risks.  Adding, that the government has enough policy tools to handle any risks.

China’s fiscal revenue and expenditure saw faster growth in the first two months of 2017, driven by an improved economy and higher spending on social welfare, official data showed yesterday.

Fiscal revenue rose 14.9% Y/Y to 3.15 trillion yuan (US$456 billion) in January and February, accelerating from 4.5% in 2016, according to data from the Ministry of Finance.

The ministry attributed the revenue pickup to positive trends in the Chinese economy, citing improvement in industrial activity, company profits, foreign trade and resident consumption.

The government is increasing policies to curb property price inflation within major cities and stem broader capital outflows from the Chinese economy. We continue to see these two issues as risks that may yet be underappreciated by the markets.

The Dow Jones had a minor retracement from the 1 March high of 21,169 to close the week out at 20,902. Wednesday in the US will see the Fed Reserve hand down their decision on US rates, with the market now pricing in a 92% chance of a .25% increase.

Interestingly, defensive names such as consumer staples have been some of the best performing stocks, (on a relative basis), when compared to other market sectors over the past month. In many cases, we’re now seeing PE ratios extend to 22x earnings and yields compressing down to 2.2%.

Dow leaders such as Boeing & Goldman Sachs are selling off after their terrific rally and GE, which has under performed lately, showed strength in Friday’s session.

Due to stretched equity valuations, we’re most likely to see further consolidation in the major indices.