Crashing Tigers: China and Japan in Big Trouble - FED 91

In this episode of the Fed Watch podcast, CK and I discuss the evolving economic situation in China and Japan, China’s lockdowns and real estate developments, and Japan’s monetary outlook. It’s been a while since we’ve discussed this part of the world, so we endeavor to give a broad overview. I recommend checking out the links below for more information as well. Of course, we also cover upcoming events for the Fed with their rate decision coming on May 4th, concerns over CPI and GDP in the US, and talk about how bitcoin fits into this revolutionary era. Fed Watch is a podcast for people interested in central bank current events and how Bitcoin will integrate or replace aspects of the aging financial system. To understand how bitcoin will become global money, we must first understand what’s happening now. Federal Reserve and Economic Numbers for US The first few minutes of the podcast we cover economic matters occurring in the US. The Federal Reserve is coming out with their rate decision on May 4th and it is expected to be 50 bps. We do not expect any surprises in this regard at the time of writing, but we’ll find out very shortly. The consensus view according to CME’s FedWatch tool is 99% that we will see a 50 bps hike, to a range of 75-100 bps on the Fed Funds rate. CPI for April is also due out on the 11th, which is more likely to be a surprise than the Fed Funds decision. We think the CPI could unexpectedly drop following the weak Q1 GDP numbers from last week, showing a -1.4% GDP growth. China’s Lockdowns Continue China’s economic troubles started long before the recent Shanghai lockdowns, but the regressive pandemic policy will only serve to exacerbate the problems. After a brief 2 days of zero and hope that the end of lockdown was near, new omicron cases outside quarantine have once again been detected in the besieged city. These new cases have occurred in areas where lockdowns were less strict, so we could see a total reversal from a light at the end of the tunnel, to an increasing the strictness of the lockdowns. Economic numbers out of Shanghai and China are horrible. Freight traffic in Shanghai is down 81% YoY for the last 3 weeks, and freight traffic in all of China is down 15% in the same period.  Many of the results of the lockdown have not yet hit consumers. Ships that left the area days before the lockdowns are only now completing their round trips. That means delays on orders, parts, and products will become much more noticeable. Far from ending, lockdowns are spreading. 46 cities in China now have some form of restrictions, totalling 340 million people and nearly 80% of their economy. Beijing itself is bracing for Shanghai style lockdowns as 2 days of city-wide testing is causing residents to stock up on food and limit daily travel to areas closer to home. They don’t want to be caught unprepared if Beijing institutes rapid lockdowns like in Shanghai where some parts of the city only had a matter of hours to comply. China Economic Troubles We cannot trust CCP economic numbers, but we have some private statistics that in the same ballpark. For example, Caixin’s Purchasing Managers