Flash: Taper is a smoke-screen it's all about China now - RBS

FXstreet.com (Barcelona) - While RBS FX Strategist Greg Gibbs argues the Fed may still be not in the mood to taper at all, he makes a good point by saying that even if it does, is still left with a very large rate of monthly asset purchase, not forgetting it is ready to ramp it up again. So Gibbs thinks "too much ink has been spilled on over-hyping this event already."

According to Gibbs, "the big risk factor for global markets now is China and how it deals with its financial bubble, with all the evidence is that the new government is now working on this problem." For the Strategist, the real question now is "can they let the air out without too much damage?" Gibbs wonders, responding that "it's really a matter of how much damage."

That realisation, in view og Gibbs, is probably the main reason for the sustained weakness in commodity and Asian emerging currencies this year: "It is a reason for their significant further decline than risk assets in the US and Europe" Gibbs said.

As a final note, Gibbs notes that we are entering a phase in which the market no longer ignores the Chinese shadow banking system, saying that "while the Taper and Abenomics smokescreens have distracted the market from developments in China somewhat, China has certainly entered the main-stream market analysis." We are seeing warning signals about the 'shadow banking' in China on a much more regular basis now.