Is China decoupled from the US?

Last week I was mulling over the prospect of seeing US corporate earnings reflecting a weakness in Financials and companies with predominant US domestic business while a resilience and even growth in US companies who have strong business in Asia and China.

I was hoping to see this and thought that if this played out, it would show that China's domestic demand had something going for it. This would lend more weight to the decoupling theory many economists scoff at.

My thoughts were that if indeed there was decoupling, then the US by the very nature of their many MNCs with businesses in China could avoid a recession overall (domestic recession but overseas contributions bolster overall). The Fed's aggressive rate cuts and cash injections would look to have worked to ease the credit crunch.

If indeed the 2Q 2008 US GDP numbers came in with good numbers then the Fed could concentrate on tackling inflation (oil and food price hikes) in the 2H of 2008. Much of this rise in oil is the result of the USD$ weakening some part because of the Fed's rate cuts. Another part is traders speculating and driving the oil prices higher.

If the Fed signals a change in policy both indicating US economic stability and an end to rate cuts, the USD$ will strengthen and oil traders will start to become anxious. As it is this scenario is playing out already. And oil traders are attempting a final push on oil prices.

I still believe Bernanke will be cautious and cut rates by 25bp at most next Wednesday. It is still not too rosy to hold rates or even raise it. The market strangely would probably not like this.

Lastly I was eagerly awaiting the 1Q 2008 results of China companies.

The China companies posted good full year 2007 results despite a supposed slow down in the US from August 2007. Already some talk was going on that despite the US slowing down, the companies did well. Is it because the China domestic consumption was real and not "repackaged" for US exports?

So good results in 1Q 2008 would clearly send the message that the decoupling theory is true.

Sino env posted very good results. And so did Ferrochina. It certainly looks like decoupling might be true.

So my wish list is as follows :

1) China companies continue to report good 1Q 2008 earnings. Proving the might of China's domestic market.

2) 2Q 2008 US GDP numbers come in showing no recession or a mild recession

3) US Federal reserve indicates confidence in US economy and signals the cycle of rate cuts is coming to an end, and the Fed will be focusing on tackling inflation next. (The WORLD will be focusing on tackling inflation)

4) Commodity prices fall, cost of raw materials drops for China and they continue with powerful growth figures.