Markets are taking bad news out of China hard. New data out of Beijing shows that the country’s exports dropped sharply in December. The figures suggest a global slowdown, and a brutal trade war with the US are taking their toll on the Chinese economy. Exports fell a whopping 4.4%. China also held a $323 bn trade surplus with the US, the largest since 2006. Imports fell 7.6%, showing how much the slowdown in China was affecting demand. Car sales in in the country also declined for the first time since 1990.
FINSUM: The tariffs are working, but there is a larger issue at stake—the US and the world’s relationship to China. There is a lot of strain being put on the country, and we are concerned about how the government there will react.
Happy new year—the Dow opened down 350 points this morning on fears over a Chinese slowdown. New data is out of the country which shows that Beijing’s manufacturing sector is contracting, a sign that tariffs may be flowing through to the economy. That makes markets hope more than ever for a trade agreement between the US and Beijing, which would likely alleviate the economic strain. The S&P 500 has fallen 20.2% on an intraday basis, an official bear market.
FINSUM: The implications of a big Chinese slowdown are serious. Firstly, how does the country react politically to what they likely view (or will project) as a US-imposed slowdown? Secondly, how much does the slowdown drag down the global economy?
Just a handful of days ago, the US-China trade situation looked to be improving. Trump and Xi reportedly had a breakthrough meeting and China even went as far as to deliberately make a positive public statement in an effort to prop up US markets. However, things have worsened rapidly. First, the US arrested the CFO of Chinese giant Huawei, which angered Beijing, and now the US is close to issuing a travel warning after China detained a Canadian diplomat. The detention is part of an effort to compel Canada not to extradite the Huawei CFO to the US.
FINSUM: We went from public display of détente to a very tense diplomatic situation. The outlook for the trade war, which will be a reflection of all the other issues, looks bleak at the moment.
Markets plunged on Tuesday, at least partly because of fears over the fragility of the US-China truce on trade. China tried to bolster belief in a deal this week by publicly reaffirming its commitment. However, any hopes of a trade agreement took a definitive nose dive today as the CFO of Chinese giant Huawei was arrested in Canada at the US’ request. Futures markets dove so sharply on the news that the CME had to stop trading for a period.
FINSUM: This could be a very wild day. Market are off to a rough start this morning, but the mood in the afternoon will be the big test of sentiment, in our opinion.
One of the scary facts of yesterday’s selloff was that there wasn’t a single identifiable catalyst for it. That said, one of those that had a certain effect was growing doubt about the strength of the Trump-Xi trade truce. Well that concern got a bit of support today as China publicly reaffirmed its commitment to the trade détente. Beijing said it was working toward a trade agreement with the US by March 1st, a sign that it intends to follow through on the promises made by Trump and Xi over the weekend.
FINSUM: We think it is a good sign China made this kind of statement. It seems an obvious reaction to the big stock market drop yesterday, but the fact that they care to help out is a good indication of where things are heading.