Given the uniformity surrounding the reflationary trade next year, its worth exploring which pillars of this thesis are most vulnerable.

One area of concern is the recent turn in China's credit cycle. China's TSF growth has typically led turns in the global mfg cycle 1/

The turn in Chinese fiscal bodes poorly for the global IP outlook next yr, relative to consensus.

Investors have likely underestimated the scale and impact that China's stimulus measures had on global mfg. China's YTD credit is already running a hefty ~45% above prior yrs 2/

Much of this credit has been funneled through local government's and property developers, just like in 2009.

This infrastructure/SoE driven production rebound typically has a high growth multiple for the RoW through China's import channel 3/

The peak in infrastructure related spending is likely behind us. 1) the government's quota for special bonds (which raises yuan for infrastructure) has now been fully used up for the year. Infrastructure related credit will dry up in the final months of 2021 4/

2) The policy discussion in Beijing appears to be pivoting away from fiscal support and towards fin stability.

Concerns abt rising defaults from SoE/prop developers and the surge in leverage is shifting the political discourse away from underpinning growth at all costs. 5/

With credit and elevated leverage concerns on the rise, officials are likely to tolerate a growth rate closer to their target (6%) than market's generally elevated expectations (>8%) for 2021 imo.

At a minimum, China's fiscal backdrop will be less supportive in '21 than '20. 6/

Equally imp will be the composition of CNY growth next year.

Growth is sure to rebound, but its composition will be driven through HHs and biz investment versus property/LG/SoE production.

Thus, the multiple to global IP from CNY growth in '21 will be far lower than in '20. 7/

There are already tentative signs of a peak in manufacturing production globally. Nov mfg PMIs in Europe and Japan saw first decline since April, with notable weakness in new orders components.

The turn in Chinese fiscal suggests this sequential weakness may continue 8/

TLDR: If there is a high probability "surprise" to next year's outlook, its that global IP surprises on the downside due to China's waning fiscal impulse. This would likely cause a re-rating lower of RoW growth versus the US, with bullish implications for the USD. End.