With what few vacuum tube-based trading algos are left and reacting with rabid kneejerkiness to every flashing red headline, one would get the impression that what matters to the Fed's decision on how to adjust its balance sheet flow depends on the US economy. But if Deutsche Bank is correct, the next source of global economic contraction, which it will be up to the Fed to offset (just like China was the marginal growth dynamo in the months after Lehman filed), and result in an increase in QE nevermind taper, is not in the US at all, but in China where things are about to go bump in the night. Which means that just like that we have moved into the "New Normal paradigm" where the worse the news out of China, the better for stocks.
From Deutsche's Jim Reid:
Over the weekend, China’s inflation, industrial production and retail sales numbers for the month of October will be released. China’s much awaited Third Plenum meeting gets underway tomorrow where DB’s Jun Ma expects a wide ranging package of reforms will follow, in terms of industry deregulation, financial liberalisation, reforms to land titles, state-owned enterprises and social security. Our take on this is that there will be lots for the market to get excited about in the reforms but that it will not necessarily be easy to implement them successfully. Our GEM equity strategist JP Smith yesterday reiterated his bearish view on China and most of the EM complex. If he's correct Yellen and Draghi are going to have interesting 2014s with the provocative thought being that Yellen may actually have to increase QE. Food for thought.
And just for thought, because very soon the bulk of the world's population won't be able to afford any other kind. Especially once the Fed is forced to start monetizing Big Macs.