China and Europe: Overwhelmed.

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Commentary & Analysis
China and Europe: Overwhelmed.

It looks as though Europe will be somewhat relieved after this week. Crude oil prices have fallen about 8 percent in one week’s time. The high prices contributed to an April trade deficit in the eurozone as the value of imports outpaced exports. Also consider the fact that in April the euro rose sharply to its highest level since December 2009. This euro collapse over the last two weeks must be a welcomed sign for eurozone officials, even though it is being driven by increased worry that there is no easy fix for the periphery nations and the cohesiveness of the monetary system.

China is worrying too.

Twice this week I have discussed the potential for the eurozone crisis to spill over and spark a broad shift in capital flows. Recent commentary out of China lends credence to this potential. From Reuters:

China’s "vital" interests are at stake if Europe cannot resolve its debt crisis, the Chinese Foreign Ministry said on Friday as it voiced concern about the economic problems of its biggest trading partner.

At a media briefing ahead of Chinese Premier Wen Jiabao’s visit to Europe next week, Vice Foreign Minister Fu Ying made plain that China had tried to help Europe overcome its troubles by buying more European debt and encouraging bilateral trade.

"Whether the European economy can recover and whether some European economies can overcome their hardships and escape crisis, is vitally important for us," Fu said.

"China has consistently been quite concerned with the state of the European economy," she said.

I’d say that’s pretty straightforward language – China is concerned. And add that to China’s domestic problems. From China Daily …

In May the consumer price index (CPI), ameasure of inflation, reached 5.5 percent year-on-year, a 34-month high, according to the NationalBureau of Statistics.

Clearly the populous is growing frustrated by the abnormally lackluster state of China’s economy. Back to Reuters:

Police in southern China have arrested 19 people in connection with one of the worst outbreaks of civil unrest seen in the export-oriented Guangdong province in years, Chinese media reported on Friday.

Other clashes have erupted in southern China in recent weeks, including in Chaozhou, where hundreds of migrant workers demanding payment of their wages at a ceramics factory attacked government buildings and set vehicles ablaze.

And, as we know, the Greeks aren’t too pleased with things either. I mean: how can the European leaders not agree on a second bailout? Just give them the money already … or they’ll throw rocks at you.

A riot in Athens yesterday. Picture taken from the Herald Sun.

Commodities have been hit pretty hard this week; the US dollar has rallied pretty strongly, softening up a bit today; and stock markets continued their slide, as seen in this chart:

Technically, it looks like stocks are due for a bounce. That could soften the risk-aversion going into next week. But ultimately, it appears the consensus will come around to the fact that global growth is facing some serious headwinds.

Have a nice weekend.

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