US risk appetite returns, China has second thoughts

<p>Kia ora,</p><p>Welcome to Tuesday's Economy Watch where we follow the economic events and trends that affect New Zealand.</p><p>I'm David Chaston and this is the International edition from Interest.co.nz.</p><p>Today we lead with news of China's struggles to contain the impacts of excessive debt and high commodity prices.</p><p>But first in the US, the Chicago Fed's <a href="http://www.interest.co.nz/sites/default/files/embedded_images/cfnai-may2021-pdf.pdf" target="_blank"><strong>National Activity Index</strong></a> suggests that economic activity moderated in April from March. This is actually consistent with other April data like employment. But subsequent data suggests this Chicago Fed monitor will rise again when the May assessments are completed.</p><p>We regularly report on the size and growth of the US Fed's balance sheet. It has been <a href="https://fred.stlouisfed.org/series/WALCL" target="_blank"><strong>rising slowly to about US$7.9 tln</strong></a> or just under 36% of <a href="https://fred.stlouisfed.org/series/GDP" target="_blank"><strong>US annual GDP</strong></a>. But new projections <a href="https://www.newyorkfed.org/medialibrary/media/markets/omo/omo2020-pdf.pdf" target="_blank"><strong>released</strong></a> by the New York Fed suggest it could rise to US$9 tln (or 41% of US GDP) by the end of next year, unless they change course and start tapering soon.</p><p>In China, corporate debt risks are rising forcing firms to enter into much shorter tenors to get their refinancing deals done. It is the world's second largest debt market, but is by far the largest as far as corporate debt maturing before the end of 2021. In fact, so much is maturing in the next seven months it matches all the maturities for both the US and EU combined for that period. <a href="https://www.bloomberg.com/news/articles/2021-05-23/china-braces-for-1-3-trillion-maturity-wall-as-defaults-surge" target="_blank"><strong>Investors are getting nervous</strong></a>, and that is making the stress levels higher. Making matters