Displaying items by tag: China
Something very interesting is happening across commodities markets—they are rallying. The reason this is interesting is it is a broad-based rally, not just in a narrow safe haven like gold. Oil, a major barometer for growth, is also jumping. The reasons why are two-part. Firstly, the US and China seemed to ease trade tensions somewhat this week at the G20; but secondly, OPEC has said it is cutting oil output. Metals, grains, and emerging markets also rallied.
FINSUM: This makes sense because a de-escalation of the trade war would help the global economy. Further, a reduction in tariffs would simply make the flow of commodities and goods smoother once again.
Trump and Xi are meeting this weekend alongside the G20, and the encounter seems likely to pivotal in the trade war between the US and China. No one is expecting a whole lot, but there is some hope of a potentially positive new path. The more likely outcome, however, appears to be an escalation of the conflict. If that happens, with both sides raising tariffs and escalating rhetoric, a mild global recession over the next six quarters seems probably, says UBS. This would likely prompt global rate cutting by central banks.
FINSUM: This seems like a decent forecast. The irony is that because of their ability to stimulate, the US and Chinese markets will probably be hurt the least by this, as it will more likely be emerging markets that take a hit.
In what comes as a potentially very good sign, the Treasury Department announced yesterday that a trade deal with China was close to becoming a reality. Steve Mnuchin, head of the Treasury, said that a deal with China was “90% of the way there”. On a slightly less positive note, he continued “The message we want to hear is that they want to come back to the table and continue because I think there is a good outcome for their economy and the U.S. economy to get balanced trade and to continue to build on this relationship”. Trump will meet Xi at the G20 gathering this weekend.
FINSUM: Mnuchin is not particularly given to exaggeration, so we take this 90% number as pretty meaningful. The downside is that the Chinese aren’t at the negotiating table right now.
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.