Displaying items by tag: trade war
The trade war between the US and China has been pretty intense for some months, but many are wondering if it is headed for a cool down as the countries come to an agreement. The odds of such a development look bleak, according to Bloomberg, because each side’s alternative is looking better. Trump and Xi will meet at the G-20 summit this week to talk over their country’s trade issues, but given that both countries have realized they have good options outside of one another, it seems unlikely a deal will materialize.
FINSUM: We think a symbolic deal could still happen, but it is hard to envision an impactful and comprehensive deal being agreed any time soon.
Bloomberg has published a very interesting article arguing that China’s economy and financial system might be on the edge of implosion. The publication mentions that the government’s bailout of Baoshang Bank last month has put money markets on edge, and for the first time, short-term lending between big institutions has started to freeze up. For the first time in decades, lenders are facing the prospect of defaults and haircuts on loans to other financial institutions. This has led funding costs for companies to shoot higher.
FINSUM: As is the norm with China, we have little direct insight into this. However, if you take a step back and look at the overall pressure on the economy from the trade war and combine it with the data above, it does sound like something very nasty could be brewing.
Bank of America has just published an important piece of data. The bank has put out the results of its sentiment survey of investors and has found that US investors are the most bearish they have been since the Financial Crisis. The survey was of fund managers, so is an indication of institutional investment sentiment. Allocations to equities among those polled hit their lowest level since March 2009, the month the stock market bottomed. “FMS investors have not been this bearish since the global financial crisis, with pessimism driven by trade war and recession concerns”, said BAML’s chief investment strategist.
FINSUM: It is hard to know how seriously to take this. It is certainly a pertinent piece of information, but is it a bearish indicator or a bullish contrarian indicator?
Deutsche Bank is an uber dove. The bank has just come out saying it expects the Fed to make three full rate cuts before the end of the year. “Over the past month, downside risks to the outlook for the US economy and Fed have built”, said Deutsche Bank, continuing that a mix of different concerns, from the trade war to weak inflation, are pointing to “more negative outcomes”. Pimco thinks the Fed won’t cut this month, but that it may cut by 50 bp in July, saying “we wouldn’t expect Fed officials to wait for the economic data to confirm declining US growth — if they do, they could risk a more meaningful shock to economic activity”.
FINSUM: The odds of a downturn certainly seem higher than an upturn, which means the Fed is much more likely to cut than to hike. That said, three rate hikes in the next six months sounds a bit aggressive to us, especially because the Fed would want to leave some firepower if the economy really heads downward.
Hong Kong has erupted into full scale riots with over 1m people taking to the streets. Protesters are angry over a new measure that would allow mainland China to extradite accused criminals from Hong Kong to their courts, a measure which many in Hong Kong say is a clear violation of China’s agreement to leave Hong Kong’s freedoms in place for 50 years. The US has condemned the measure in serious terms, but the reality is that Hong Kong’s fate, and the US’ protection of the city-state, may become a pawn in the trade war, with the US government using it as an element to help it get a better deal.
FINSUM: This seems like one more way for Beijing to exert control on Hong Kong, and we dislike it as much as the protesters on the street. There has been a furious international backlash to the proposal, but it remains to be seen how it may impact the trade war. One more thing we think is important to note: there are 85,000 Americans living in Hong Kong.